SUSTAINABLE INVENTORY MODELS WITH REDUCTION ON ENVIRONMENTAL EMISSION AND ORDERING COSTS UNDER THE DISCOUNT POLICY OF PREPAYMENT

Abstract

This article integrates sustainability principles into a two-echelon supply chain comprising a single-vendor and single-buyer (SV-SB), balancing economic performance and environmental responsibility, as supply chain activities are major sources of environmental emissions. Following that, businesses are compelled to implement additional strategies that simultaneously lower operational costs and minimize environmental emissions. In line with this, the article considers a sustainable economic order quantity (SEOQ) inventory model within a carbon allowance policy. It will investigate the impact of strategic investments designed to reduce ordering and environmental emissions costs. On the other hand, this article considers a vendor who offers price discounts based on the number of advance payment installments. The highest discount is granted with full prepayment in a single installment, whereas partial prepayment yields a lower discount rate, which depends on the number of advance installments. The aim is to determine the optimal replenishment cycle, ordering cost, and environmental emission cost with closed-form solutions under various prepayment discount policies. A solution algorithm is developed to offer guidance for logistics managers on making informed decisions within a sustainable inventory framework. Finally, to demonstrate the model’s effectiveness and managerial insights, numerical examples and sensitivity analyses are conducted.