Title: Determination of optimal pricing, shipment and payment policies for an integrated supplier–buyer deteriorating inventory model in buoyant market with two-level trade credit

Authors: Nita H. Shah, Ajay S. Gor, Chetan A. Jhaveri

Addresses: Department of Mathematics, Gujarat University, Ahmedabad 380009, Gujarat, India. ' Pramukh Swami Science and H.D. Patel Arts College, Sarva Vidhyalaya Campus, Opposite Railway Station, Kadi 382715, Gujarat, India. ' S.L. Institute of Business Administration, Near St. Xavier College Corner, Navrangpura, Ahmedabad 380009, Gujarat, India

Abstract: In this paper, an integrated supplier–buyer inventory model is studied when the units in inventory are subject to deterioration at a constant rate, the market demand is quadratic and sensitive to retailer price and the supplier offers a trade credit. The trade credit policy under assumption is |two-part| strategy viz. |net credit|, that is, retailer has a choice between cash discount and trade credit. |Net credit| means if the buyer pays within time period M₁ then the buyer receives a cash discount; otherwise, the full account must be settled before time period M₂ where M₂ > M₁ ≫ 0. The goal is to determine the optimal pricing, ordering, shipping and payment policy to maximise the joint profit per unit time. An algorithm is given to obtain optimal solution. The numerical example is given to validate the proposed model and to arrive at managerial insights.

Keywords: integrated inventory modelling; net credit; price sensitive quadratic demand; deterioration; optimisation; pricing policy; shipment policy; payment policy; deteriorating inventory; buoyant markets.

DOI: 10.1504/IJOR.2011.040693

International Journal of Operational Research, 2011 Vol.11 No.2, pp.119 - 135

Published online: 14 Feb 2015 *

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