Two-echelon trade credit financing in a supply chain with perishable items and two different payment methods

Abstract

In business, trade credits can be considered as a type of price discounts. In this paper, supplier offers full trade credit to his retailer and the retailer in turn offers partial trade credit to market customers. At the end of trade credit period, retailer considers two different payment methods to pay off the loan. In one type of payment method, the retailer settles the account for all units sold, keeps the profits for other use and starts paying interest charges on the unpaid balance. In another payment method, the retailer pays the supplier the total amount in the interest bearing account and then starts paying off the amount owed to the supplier whenever the retailer has money obtained from sales. Under the above conditions, we establish EOQ inventory models with perishable items. Mathematical theorems are developed to determine the optimal ordering policies for the retailer. To investigate the effect of changes in inventory parameter values on the optimal policy, a sensitivity analysis is conducted.