Mathematical Analytic Techniques for Determining the Optimal Ordering Strategy for the Retailer Under the Permitted Trade-Credit Policy of Two Levels in a Supply Chain System

Abstract

In this article, we explore a certain kind of two-level trade credit in order
to reflect the real-life situations. With this objective in view, we consider
the case when the supplier offers two-level trade credit for the retailer for
settling the account. If the retailer pays off all accounts at the end of the
first credit period, then he/she can utilize the sales revenue to earn interest
until the inventory cycle time. On the other hand, if the retailer cannot pay
off the unpaid balance at the end of the first credit period, then he/she can
decide to pay off the unpaid balance either after the end of the first credit
period or after the second credit period. Here, in this situation, the retailer
reduces the financed loan from constant sales and revenue received gradually
and he/she still can utilize the sales revenue to earn interest when he/she
pays off all accounts. Maximizing the profit is used as the objective to
develop the inventory model. Based upon the obtained properties of the
optimal solution, two theorems are developed to determine the optimal
replenishment policy. Finally, computational developments are presented
in order to illustrate numerically the main theoretical results which are proven
in this article by using some mathematical solution procedures.