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Optimal economic ordering policy with deteriorating items under different supplier trade credits for finite horizon case

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  • Balkhi, Zaid T.
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    This paper develops and solves a general finite horizon trade credit economic ordering policy for an inventory model with deteriorating items under inflation and time value of money when shortages are not allowed. The time horizon is divided into different cycles each of which has its own demand rate and its own trade credit period offered from the supplier to his retailer so that the retailer should pay his supplier before or after the end of the permissible trade credit of that cycle. Up to the end of the trade credit of a cycle, the retailer is free of charge, but he is charged on an interest for those items not being sold before this end. The retailer can also earn the interest of the money from the generated sales revenue in any cycle by depositing such revenue into an interest bearing account. The objective of the retailer is then to minimize his net total relevant costs. A closed form of this net total cost is derived and the resulting model is solved. Then rigorous mathematical methods are used to show that, under some seemingly possible conditions, there exist a unique vector of the relevant decision variables that solve the underlying inventory system. A numerical example which shows the applicability of the theoretical results is given.

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    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 133 (2011)
    Issue (Month): 1 (September)
    Pages: 216-223

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    Handle: RePEc:eee:proeco:v:133:y:2011:i:1:p:216-223
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    1. Sana, Shib Sankar & Chaudhuri, K.S., 2008. "A deterministic EOQ model with delays in payments and price-discount offers," European Journal of Operational Research, Elsevier, vol. 184(2), pages 509-533, January.
    2. 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.
    3. Chung, Kun-Jen & Liao, Jui-Jung, 2009. "The optimal ordering policy of the EOQ model under trade credit depending on the ordering quantity from the DCF approach," European Journal of Operational Research, Elsevier, vol. 196(2), pages 563-568, July.
    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. Luo, Jianwen, 2007. "Buyer-vendor inventory coordination with credit period incentives," International Journal of Production Economics, Elsevier, vol. 108(1-2), pages 143-152, July.
    6. Balkhi, Zaid T., 2001. "On a finite horizon production lot size inventory model for deteriorating items: An optimal solution," European Journal of Operational Research, Elsevier, vol. 132(1), pages 210-223, July.
    7. Liao, Hung-Chang & Tsai, Chih-Hung & Su, Chao-Ton, 2000. "An inventory model with deteriorating items under inflation when a delay in payment is permissible," International Journal of Production Economics, Elsevier, vol. 63(2), pages 207-214, January.
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