Optimal Replenishment Strategy for a High-Tech Product Demand with Non-Instantaneous Deterioration under an Advance-Cash-Credit Payment Scheme by a Discounted Cash-Flow Analysis

Abstract

This study investigated non-instantaneous deteriorating items because not all products deteriorate immediately. In the high-tech product life cycle, the product demand increases linearly substantially in the growth stage and maintains a near-constant level in the maturity stage. This is a ramp-type demand rate. To satisfy the demand as shortages occur, partial backlogging is necessary. The advance-cash-credit payment scheme, comprising advance, cash, and credit payments, has gained popularity in business transactions to improve cash flow flexibility among supply chain participants. This study explored a partial backlogging inventory model with ramp-type demand for non-instantaneous deteriorating items under generalized payment. The proposed model also incorporated discounted cash flow analysis to account for the time value of the profit function. This study attempted to determine the optimal replenishment strategy to maximize the present value of the total profit. Finally, we conducted a sensitivity analysis to examine the efficacy of the proposed model and gain managerial insights. The optimal total profit rises with an increase in the permissible delay period and sale price but decreases with an increase in ordering and purchase costs. Then, the decision-maker can refer to the managerial insights to choose the appropriate parameter value for the operation.