The supplier-retailer optimal replenishment decisions under a two-level trade credit model with shortage for deteriorating items

This paper establishes an integrated inventory model of a supplier and a manufacturer under a two-level trade credit contract. The manufacturer's inventory model follows the economic production quantity model and the produced items follow exponentially deterioration rate and price-dependent demand. Shortages are allowed for the manufacturer and are completely backlogged to the next period. Traditional inventory system and one-level trade credit are also concluded as special cases of the developed two-level trade credit model and the supply chain performance under these three policies are compared. The formulated models aim at helping the supply chain decision makers to determine the best delay strategy and find the optimal values for replenishment policy and the manufacturer's selling price in order to maximise the supply chain total net profit. The results have been then validated with a numerical example and the effect of various parameters on the optimal solution is finally studied by performing sensitivity analysis.