An EOQ model for deteriorating items under trade credits

Ouyang L-Y, Chang C-T and Teng J-T ()
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Ouyang L-Y: Tamkang University, Tamsui
Chang C-T: Tamkang University, Tamsui
Teng J-T: William Paterson University of New Jersey

Journal of the Operational Research Society, 2005, vol. 56, issue 6, 719-726

Abstract: Abstract In the classical inventory economic order quantity (or EOQ) model, it was assumed that the supplier is paid for the items immediately after the items are received. However, in practices, the supplier may simultaneously offer the customer: (1) a permissible delay in payments to attract new customers and increase sales, and (2) a cash discount to motivate faster payment and reduce credit expenses. In this paper, we provide the optimal policy for the customer to obtain its minimum cost when the supplier offers not only a permissible delay but also a cash discount. We first establish a proper model, and then characterize the optimal solution and provide an easy-to-use algorithm to find the optimal order quantity and replenishment time. Furthermore, we also compare the optimal order quantity under supplier credits to the classical economic order quantity. Finally, several numerical examples are given to illustrate the theoretical results.

Keywords: inventory; cash discount; delay payments; deteriorating items; trade credit (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1057/palgrave.jors.2601881

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