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Optimal Ordering and Trade Credit Policy for EOQ Model


  • Hardik Soni
  • Nita H. Shah

    () (Gujarat University, Ahmedabad – 80009, Gujarat, India.
    Indus Institute of Higher Education (IIHE) karachi Pakistan,)


Trade credit is the most prevailing economic phenomena used by the suppliers for encouraging the retailers to increase their ordering quantity. In this article, an attempt is made to derive a mathematical model to find optimal credit policy and hence ordering quantity to minimize the cost. Even though, credit period is offered by the supplier, both parties (supplier and retailer) sit together to agree upon the permissible credit for settlement of the accounts by the retailer. A numerical example is given to support the analytical arguments.

Suggested Citation

  • Hardik Soni & Nita H. Shah, 2008. "Optimal Ordering and Trade Credit Policy for EOQ Model," Indus Journal of Management & Social Science (IJMSS), Department of Business Administration, vol. 2(1), pages 66-76, June.
  • Handle: RePEc:iih:journl:v:2:y:2008:i:1:p:66-76

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    References listed on IDEAS

    1. 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.
    2. Chung, Kun-Jen & Huang, Yung-Fu, 2003. "The optimal cycle time for EPQ inventory model under permissible delay in payments," International Journal of Production Economics, Elsevier, vol. 84(3), pages 307-318, June.
    3. Abad, P. L. & Jaggi, C. K., 2003. "A joint approach for setting unit price and the length of the credit period for a seller when end demand is price sensitive," International Journal of Production Economics, Elsevier, vol. 83(2), pages 115-122, February.
    4. 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.
    5. 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.
    6. Chung, Kun-Jen & Goyal, Suresh Kumar & Huang, Yung-Fu, 2005. "The optimal inventory policies under permissible delay in payments depending on the ordering quantity," International Journal of Production Economics, Elsevier, vol. 95(2), pages 203-213, February.
    7. Robert A. Davis & Norman Gaither, 1985. "Optimal Ordering Policies Under Conditions of Extended Payment Privileges," Management Science, INFORMS, vol. 31(4), pages 499-509, April.
    8. Ouyang, Liang-Yuh & Teng, Jinn-Tsair & Chuang, Kai-Wayne & Chuang, Bor-Ren, 2005. "Optimal inventory policy with noninstantaneous receipt under trade credit," International Journal of Production Economics, Elsevier, vol. 98(3), pages 290-300, December.
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    More about this item


    Trade Credit; Optimal ordering quantity; Lot-size;

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis


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