Optimal replenishment decisions under two-level trade credit with partial upstream trade credit linked to order quantity and limited storage capacity

Abstract

This paper extends the previous economic order quantity (EOQ) models under two-level trade credit such as Goyal (1985), Teng (2002), Huang (2003, 2007), Kreng and Tan (2010), Ouyang et al. (2013), and Teng et al. (2007) to reflect the real-life situations by incorporating the following concepts: (1) the storage capacity is limited, (2) the supplier offers the retailer a partially upstream trade credit linked to order quantity, and (3) both the dispensable assumptions that the upstream trade credit is longer than the downstream trade credit N < M and the interest charged per dollar per year is larger than or equal to the interest earned per dollar per year I c < I e are relaxed. We then study the necessary and sufficient conditions for finding the optimal solution for various cases and establish a useful algorithm to obtain the solution. Finally, numerical examples are given to illustrate the theoretical results and provide the managerial insights. © 2013 Chih-Te Yang et al.