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 ()
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.
Share and Cite:
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.