Optimal pricing and ordering policies for perishable products under advance-cash-credit payment scheme

Abstract

Recently, market globalization and competition have forced companies to find alternative means to boost sales and revenue. The use of the cash flow is increasingly becoming a viable alternative for managers to improve their company's profitability in a supply chain. In today's business transactions, a supplier usually asks a manufacturer to pay via the advance-cash-credit (ACC) payment scheme if the number of goods procured is high. Additionally, product perishability has been considered in an economic production quantity (EPQ) model since it is a real phenomenon. The present work develops an EPQ model for perishable products under the ACC payment scheme. The objective of the proposed model is to determine the optimal selling price and cycle time while maximizing profit under the ACC payment scheme using a discounted cash flow analysis. A nonlinear optimization algorithm is also proposed to solve the problem. In addition, some numerical examples are employed to illustrate the solution approach and show the concavity of the present value of the total annual profit in terms of both selling price and cycle time. The numerical results show that our proposal algorithm could be applied well to solve the problems. In addition, a sensitivity analysis is conducted to obtain some managerial insights. For example, if the impact of advance payment on procurement cost is relatively smaller than that of cash payment, then it is more profitable for the manufacturer to ask for a cash payment than to receive an advance payment and vice versa.

Optimal pricing, ordering, and credit period policies for deteriorating products under order-linked trade credit

“…The assumption represents that the demand reduces as the price decreases, however, it increases due to an increase of credit time. This assumption is common in research field such as [17] and [35].…”

“…Generally, an enormous amount of research has been conducted on the inventory model under trade credit policy and deteriorating products [23] [17] [35]. Nevertheless, so far, the researchers mainly focus on the perspective of the buyer.…”

“…Second, a DCF analysis is used to include the time value of money. The DCF model more frequently used in valuation because of the consistency of long-term value creation and may capture all the elements that alter the company value in an inclusive way, as explain in [16] and [35]. The difference of trade credit applications is the payment time.…”

Inventory Models for Non-Instantaneous Deteriorating Items with Expiration Dates and Imperfect Quality under Hybrid Payment Policy in the Three-Level Supply Chain

“…Wu et al [13] examined an inventory model with expiration date dependent deterioration under an advance-cash-credit payment scheme to find the optimal replenishment cycle time and the fraction of no shortages such that the total profit is maximized. Moreover, some related recent articles are those by, for example, Zia and Taleizadeh [14], Wu et al [15], Chen et al [16], Teng et al [17], Diabat et al [18], Feng et al [19], Mahata and De [20], Tiwari et al [21], Taleizadeh et al [22], Li et al [23,24], Taleizadeh [25], Krommyda et al [26], Tsao et al [27], Mashud et al ([28,29]), AlArjani et al [30], and Hou et al [31].…”

Integrated inventory model involving quality improvement investment and advance-cash-credit payments

“…Wu et al [43] considered an EOQ model including perishable products with expiration dates and ACC payment schemes. Tsao et al [42] developed an EPQ model for perishable products under the ACC payment scheme using a discounted cash flow analysis. Other studies related to inventory model with ACC payment include [4,23,24] and so on.…”