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Retailer's optimal replenishment decisions with credit-linked demand under permissible delay in payments

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  • Jaggi, Chandra K.
  • Goyal, S.K.
  • Goel, S.K.

Abstract

Usually it is assumed that the supplier would offer a fixed credit period to the retailer but the retailer in turn would not offer any credit period to its customers, which is unrealistic, because in real practice retailer might offer a credit period to its customers in order to stimulate his own demand. Moreover, it is observed that credit period offered by the retailer to its customers has a positive impact on demand of an item but the impact of credit period on demand has received a very little attention by the researchers. To incorporate this phenomenon, we assume that demand is linked to credit period offered by the retailer to the customers. This paper incorporates the concept of credit-linked demand and develops a new inventory model under two levels of trade credit policy to reflect the real-life situations. An easy-to-use algorithm is developed to determine the optimal credit as well as replenishment policy jointly for the retailer. Finally, numerical example is presented to illustrate the theoretical results followed by the sensitivity of various parameters on the optimal solution.

Suggested Citation

  • Jaggi, Chandra K. & Goyal, S.K. & Goel, S.K., 2008. "Retailer's optimal replenishment decisions with credit-linked demand under permissible delay in payments," European Journal of Operational Research, Elsevier, vol. 190(1), pages 130-135, October.
    • Handle: RePEc:eee:ejores:v:190:y:2008:i:1:p:130-135
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    References listed on IDEAS

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    1. Goyal, Suresh Kumar & Teng, Jinn-Tsair & Chang, Chun-Tao, 2007. "Optimal ordering policies when the supplier provides a progressive interest scheme," European Journal of Operational Research, Elsevier, vol. 179(2), pages 404-413, June.
    2. Jamal, A. M. M. & Sarker, Bhaba R. & Wang, Shaojun, 2000. "Optimal payment time for a retailer under permitted delay of payment by the wholesaler," International Journal of Production Economics, Elsevier, vol. 66(1), pages 59-66, June.
    3. Teng, Jinn-Tsair & Chang, Chun-Tao & Goyal, Suresh Kumar, 2005. "Optimal pricing and ordering policy under permissible delay in payments," International Journal of Production Economics, Elsevier, vol. 97(2), pages 121-129, August.
    4. Charles W. Haley & Robert C. Higgins, 1973. "Inventory Policy and Trade Credit Financing," Management Science, INFORMS, vol. 20(4-Part-I), pages 464-471, December.
    5. J-T Teng, 2002. "On the economic order quantity under conditions of permissible delay in payments," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 53(8), pages 915-918, August.
    6. Jaggi, C. K. & Aggarwal, S. P., 1994. "Credit financing in economic ordering policies of deteriorating items," International Journal of Production Economics, Elsevier, vol. 34(2), pages 151-155, March.
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