Determination of the optimal ordering policy for the retailer with limited capitals when a supplier offers 2 levels of trade credit

Abstract

In this article, we consider and investigate the cases when the retailer's capitals are restricted and when the supplier offers another kind of 2-level trade credit. This means that the supplier offers 2-level trade credit for the retailer to settle the account and the retailer's capitals are restricted, so the retailer decides to pay off the unpaid balance as follows: Firstly, the retailer decides to pay off the unpaid balance at the end of the first credit period if the retailer can pay off all accounts and, in addition, the retailer can use the sales revenue to earn interest throughout the replenishment cycle time. Secondly, the retailer decides to pay off all accounts either after the end of the first credit period, but before the second credit period, or after the second credit period if the retailer cannot pay off the unpaid balance at the end of the first credit period. Additionally, the delay will incur interest charges on the unpaid and overdue balance due to the difference between the interest earned and the interest charged. Consequently, the main purpose of this article is to characterize the optimal solution processes and (in accordance with the functional behavior of the cost function) to search for the optimal replenishment cycle time. Finally, numerical examples are given to illustrate the theoretical results which are proven in this article by means of mathematical solution procedures. KEYWORDS cash discounts, economic order quantity (EOQ), inventory control and integrated model, inventory models and optimization, mathematical solution procedures, optimal ordering policy, optimal replenishment cycle time, quantity discounts, supply chain management, two-level trade credit 7686

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