Title: A model for coordinating and joint optimisation of inventory and credit policies in an inventory system with date-terms credit linked demand

Authors: K.K. Aggarwal; Arun Kumar Tyagi

Addresses: Department of Operational Research, Faculty of Mathematical Sciences, University of Delhi, Delhi-110007, India ' Department of Operational Research, Faculty of Mathematical Sciences, University of Delhi, Delhi-110007, India

Abstract: When firm gives credit period to its customers for generating credit sales in addition to cash sales, then it is quite possible that some of the cash customers would also take benefit of trade credit and buy on credit. Thus, decision of granting trade credit may have disintegrating effect on cash sales apart from stimulating new credit sales. Moreover, credit policy through its impact on demand becomes the determinant of inventory policy, which is intended to meet that demand. Therefore, inventory and credit policies are interrelated which should be determined simultaneously in a systems perspective. In this paper, a mathematical model is developed in discounted cash flow (DCF) framework to jointly determine inventory and credit policies in the presence of stimulating as well as disintegrating effect of credit period on demand. Numerical example and sensitivity analysis are presented to illustrate effectiveness of the model and results are discussed.

Keywords: inventory policy; trade credit; date-term credit; credit linked demand; discounted cash flow; DCF; management science; optimisation; coordination; credit policy; mathematical modelling; inventory modelling.

DOI: 10.1504/IJOR.2015.065940

International Journal of Operational Research, 2015 Vol.22 No.1, pp.65 - 90

Received: 08 Nov 2012
Accepted: 29 Apr 2013
Published online: 09 May 2015 *

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