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Optimal ordering policy for an inventory system with linearly increasing demand and allowable shortages under two levels trade credit financing

Author

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  • B. C. Giri

    (Jadavpur University)

  • S. Sharma

    (Jadavpur University)

Abstract

To reduce default risk, a retailer may offer a partial down-stream trade credit to its credit-risk customers who should pay a portion of their purchasing costs at the time of receiving items as a collateral deposit, and then receive a permissible trade credit on the rest of the outstanding amount. To reflect this fact, we consider an inventory model with linear time dependent demand under two levels of trade credit and allowable shortages. Depending on the relationship between up-stream and down-stream trade credit periods, several cases are considered and the necessary and sufficient conditions are derived for finding the optimal solution. We also present a simple algorithm to determine the optimal solution. Numerical examples are provided to illustrate the solution procedure. Sensitivity analysis of important model-parameters is performed and some relevant managerial implications are discussed.

Suggested Citation

  • B. C. Giri & S. Sharma, 2016. "Optimal ordering policy for an inventory system with linearly increasing demand and allowable shortages under two levels trade credit financing," Operational Research, Springer, vol. 16(1), pages 25-50, April.
    • Handle: RePEc:spr:operea:v:16:y:2016:i:1:d:10.1007_s12351-015-0184-y
    DOI: 10.1007/s12351-015-0184-y
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    References listed on IDEAS

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    Cited by:

    1. Ping Ruan & Yung-Fu Huang & Ming-Wei Weng, 2022. "Impact of COVID-19 on Supply Chains: A Hybrid Trade Credit Policy," Mathematics, MDPI, vol. 10(8), pages 1-22, April.
    2. Tyrone T. Lin & Shu-Yen Hsu, 2018. "Risk Management for the Optimal Order Quantity by Risk-Averse Suppliers of Food Raw Materials," IJFS, MDPI, vol. 6(4), pages 1-17, December.
    3. Alireza Pooya & Morteza Pakdaman & Lotfi Tadj, 2019. "Exact and approximate solution for optimal inventory control of two-stock with reworking and forecasting of demand," Operational Research, Springer, vol. 19(2), pages 333-346, June.
    4. Biswajit Sarkar & Waqas Ahmed & Seok-Beom Choi & Muhammad Tayyab, 2018. "Sustainable Inventory Management for Environmental Impact through Partial Backordering and Multi-Trade-Credit-Period," Sustainability, MDPI, vol. 10(12), pages 1-28, December.
    5. Ata Allah Taleizadeh & Nadia Pourmohammad-Zia & Ioannis Konstantaras, 2021. "Partial linked-to-order delayed payment and life time effects on decaying items ordering," Operational Research, Springer, vol. 21(3), pages 2077-2099, September.
    6. Subhendu Ruidas & Mijanur Rahaman Seikh & Prasun Kumar Nayak, 2022. "A production-repairing inventory model considering demand and the proportion of defective items as rough intervals," Operational Research, Springer, vol. 22(3), pages 2803-2829, July.
    7. Bo Yan & Kun Luo & Li‐Feng Liu & Yan‐Ru Chen & Yi‐Fan Yang, 2020. "Supply chain finance: A three‐party decision model with suppliers' guarantees for retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1174-1194, October.
    8. Wu, Chengfeng & Liu, Xin & Li, Annan, 2021. "A loss-averse retailer–supplier supply chain model under trade credit in a supplier-Stackelberg game," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 182(C), pages 353-365.
    9. Aditi Khanna & Aakanksha Kishore & Biswajit Sarkar & Chandra K. Jaggi, 2018. "Supply Chain with Customer-Based Two-Level Credit Policies under an Imperfect Quality Environment," Mathematics, MDPI, vol. 6(12), pages 1-35, December.

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