Trade Credit Induced Inventory Model for New Products

Abstract

The inventory management of new products becomes crucial because demand of such products is highly dynamic and has less predictable growth behavior. This is because there is strong relationship between nature of demand and procurement policy of the products. It becomes more significant when the concept of permissible delay in payments is also taken into account. There are numerous inventory models which do not incorporate the effect of permissible delay in payments which is unfortunate in the field of developing inventory models for new products. The permissible delay in payments is a kind of marketing tool which plays a significant role in influencing the demand of the products and it becomes more crucial when one discusses the inventory policies of new products. This paper discusses the economic ordering policies for new products where supplier offers trade credit period to the retailer and no interest is charged by the supplier to the retailer during this period. The concept of inflation and time value of money is also incorporated into the model. A solution procedure in the form of algorithm has been developed to solve the model numerically. A numerical example followed by comprehensive sensitivity analysis has been discussed to know the applicability of the model in the market.