Title: Retailer's optimal order and credit policies when a supplier offers either a cash discount or a delay payment linked to order quantity

Authors: Chih-Te Yang; Qinhua Pan; Liang-Yuh Ouyang; Jinn-Tsair Teng

Addresses: Department of Industrial Management, Ching Yun University, Jung-Li, Taoyuan 320, Taiwan ' Department of Economies and Finance, School of Economics and Management, Tongji University, Shanghai, 200092, China ' Department of Management Sciences, Tamkang University, Tamsui, Taipei 251, Taiwan ' Department of Marketing and Management Sciences, Cotsakos College of Business, The William Paterson University of New Jersey, Wayne, New Jersey 07470, USA

Abstract: To increase sales and reduce default risks, a supplier may offer its retailers either: 1) a cash discount; 2) a fixed credit period M if the order quantity is greater than or equal to a predetermined quantity W. Likewise, a retailer in turn offers its customers a credit period N, which has a positive impact on its demand but a negative impact on its default risks. In this paper, we establish an inventory model for a retailer in a supply chain when a supplier offers either a cash discount or a delay payment linked to order quantity; meanwhile it offers its customers a permissible delay in payments. Then, we derive several theoretical results to determine the optimal solution under various situations and develop an algorithm to solve this complex inventory problem. Finally, several numerical examples are given to illustrate the theoretical results and provide some managerial insights. [Received 9 April 2011; Revised 14 August 2011; Accepted 21 October 2011]

Keywords: inventory modelling; finance; default risks; cash discount; delay payment; order quantity; order policy; credit policy; retailers.

DOI: 10.1504/EJIE.2013.054132

European Journal of Industrial Engineering, 2013 Vol.7 No.3, pp.370 - 392

Available online: 22 May 2013 *

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