An EOQ model with allowable shortage under trade credit in different scenario

Chandra K. Jaggi, V.S.S. Yadavalli, Mona Verma and Anuj Sharma

Applied Mathematics and Computation, 2015, vol. 252, issue C, 541-551

Abstract: In present business culture, usually supplier offers a permissible delay in payments to retailer in order to stimulate his demand. However, while developing the inventory model with shortages under permissible delay in payments, it has been observed, in the literature, that researcher have not considered the fact that retailer can earn interest on the revenue generated after fulfilling the outstanding demand as soon as his new consignment arrives at the beginning of the cycle. Thus, the revenue along with the interest earn can be utilized to pay off the amount at the of credit period. At this point of time there may be two scenarios, either he has enough amounts to settle the account with the supplier or delay incurring interest charges on the unpaid/overdue balance and the determination of a retailer’s pay off time, after the expiring of credit period, is largely affected by his interest income and interest payable. Owing to these facts, a retailer cost minimization inventory model has been developed for each scenario which jointly optimizes the cycle length and stock-in period. The model has been validated with the help of numerical example. Sensitivity analysis along with its economic interpretation has been also presented.

Keywords: Inventory; EOQ; Trade credit; Fully backlogged shortage (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:apmaco:v:252:y:2015:i:c:p:541-551

DOI: 10.1016/j.amc.2014.12.040

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