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Optimal Ordering Policy for Deteriorating Items with Limited Storage Capacity under Two-Level Trade Credit Linked to Order Quantity by a Discounted Cash-Flow Analysis

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DOI: 10.4236/ojbm.2019.72063    114 Downloads   227 Views
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ABSTRACT

Nowadays, the supplier often provides cash discount or permissible delay in payments to its retailers, if the order quantity attains a certain amount. Likewise, the retailer also provides a downstream trade credit period to his customers. In practice, as the supplier provides price discounts for bulk purchases, the retailer may purchase more goods than can be stored in its owned warehouse and store the excess quantities in a rented warehouse. Thus, a two-warehouse inventory model is needed to be considered. Further, the cost is usually affected by the present value of time and products deteriorate as time increases. Therefore, this paper develops a supplier-retailer-customer chain inventory model in which 1) two-level trade credit linked to order quantity is considered; 2) storage capacity is limited; 3) the effect of inflation and time value of money by a discounted cash-flow analysis is taken into account. The demand rate is linearly increasing with time and the deterioration rate is constant. Based on the viewpoint of cost minimization, the objective is to find the optimal replenishment cycle and order quantity to keep the present value of the total relevant cost per unit time as minimum as possible. The research shows that in each case discussed, the optimal solution for each case exists uniquely. Finally, numerical examples are provided for illustration and some managerial insights based on the numerical results are also presented.

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Yang, H. (2019) Optimal Ordering Policy for Deteriorating Items with Limited Storage Capacity under Two-Level Trade Credit Linked to Order Quantity by a Discounted Cash-Flow Analysis. Open Journal of Business and Management, 7, 919-940. doi: 10.4236/ojbm.2019.72063.

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