Retailer’s optimal policies for deteriorating items with a fixed lifetime under order-linked conditional trade credit

Abstract

The player uses credit financing to perform profitable business. We analyze an economic order quantity model in which items have a fixed lifetime and deteriorate over time. The supplier offers the retailer a full credit period whenever the retailer orders more than or equal to a prespecified quantity. If the retailer orders less than pre-specified order quantity, then the retailer will do partial payment to the supplier and avail of delay in payments for the remaining outstanding amount. The demand is price-sensitive. The retailer’s profit is maximized by setting appropriate retail price and replenishment time. The algorithm is developed to choose the best policy for the decision maker from the number of alternatives. Numerical data is used to validate the theoretical developments. Managerial insights are discussed. It is observed that for a given units to qualify for avail of partial credit period, increase in ordering cost decreases profit of the retailer. The increase in rate of the purchase cost to avail of delay payment suggests that to have a more profit, retailer should deplete stock before the allowable credit period.