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Retailer’s optimal ordering policy under supplier credits

Author

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  • Chun-Tao Chang
  • Jinn-Tsair Teng

Abstract

In the traditional inventory economic order quantity (or EOQ) model, it was assumed that the customer must pay for the items as soon as the items are received. However, in practices, the supplier frequently offers a cash discount and/or a permissible delay to the customer especially when the economy turns sour. As a result, in this paper, we establish an optimal ordering policy for a retailer when the supplier provides not only a cash discount to avoid the default risk but also a permissible delay to increase sales. We then characterize the optimal solution and provide an easy-to-use algorithm to find the optimal order quantity and replenishment time. Furthermore, we also compare the optimal order quantity under supplier credits to the classical economic order quantity. Finally, several numerical examples are given to illustrate the theoretical results and make the sensitivity of parameters on the optimal solution. Copyright Springer-Verlag 2004

Suggested Citation

  • Chun-Tao Chang & Jinn-Tsair Teng, 2004. "Retailer’s optimal ordering policy under supplier credits," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 60(3), pages 471-483, December.
    • Handle: RePEc:spr:mathme:v:60:y:2004:i:3:p:471-483
    DOI: 10.1007/s001860400370
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    Citations

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    Cited by:

    1. Kun-Jen Chung & Jui-Jung Liao & Shy-Der Lin & Sheng-Tu Chuang & Hari Mohan Srivastava, 2019. "The Inventory Model for Deteriorating Items under Conditions Involving Cash Discount and Trade Credit," Mathematics, MDPI, vol. 7(7), pages 1-20, July.
    2. Teng, Jinn-Tsair & Min, Jie & Pan, Qinhua, 2012. "Economic order quantity model with trade credit financing for non-decreasing demand," Omega, Elsevier, vol. 40(3), pages 328-335.
    3. Chung, Kun-Jen & Liao, Jui-Jung, 2011. "The simplified solution algorithm for an integrated supplier-buyer inventory model with two-part trade credit in a supply chain system," European Journal of Operational Research, Elsevier, vol. 213(1), pages 156-165, August.
    4. Teng, Jinn-Tsair, 2009. "Optimal ordering policies for a retailer who offers distinct trade credits to its good and bad credit customers," International Journal of Production Economics, Elsevier, vol. 119(2), pages 415-423, June.
    5. Kun-Jen Chung & Jui-Jung Liao & Hari Mohan Srivastava & Shih-Fang Lee & Shy-Der Lin, 2021. "The EOQ Model for Deteriorating Items with a Conditional Trade Credit Linked to Order Quantity in a Supply Chain System," Mathematics, MDPI, vol. 9(18), pages 1-28, September.

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