Pricing model for petrol/diesel and inventory control under permissible delay in payment for petrol/diesel retailing station

For the first time, this study introduces the concept of inventory model involving permissible delay in payment with fully-backlogged shortage and without allowable shortage for an existing petrol/diesel retailing station. For this, crude oil price-dependent pricing model is developed to forecast the unit selling price of petrol/diesel, an important input parameter for the inventory model. Analytical solutions are obtained for all the inventory problems studied to minimise the total annual variable cost. Economic order quantities (EOQs) are compared with the actual operating values in an existing retailing station. Analysis shows that a higher EOQ is required to run the existing retailing station optimally, and the delay in payment, particularly with fully-backlogged shortage is advantageous for settling the accounts for the retailer over without allowable shortage. It is also preferred to keep more diesel inventory than petrol inventory in the sense that one can earn more sales revenue during the credit period. Finally, sensitivity analyses are also carried out for the several input model parameters.