Ordering policy for stock-dependent demand rate under progressive payment scheme

Abstract

In this article, a mathematical model is developed to formulate optimal ordering policies for retailer when demand is practically constant and partially dependent on the stock, and the supplier offers progressive credit periods to settle the account. The notion of progressive credit period is as follows: If the retailer settles the outstanding amount by M, the supplier does not charge any interest. If the retailer pays after M but before second period N offered by the supplier, then the supplier charges the retailer on the unpaid balance at the rate Ic ₁. If the retailer settles the account after N, then he will have to pay an interest rate Ic ₂ on the unpaid balance (Ic ₂ > Ic ₁). The cost minimization is considered to be an objective function. An algorithm is given to find the flow of optimal ordering policy. A numerical illustration is given to study the effect of various parameters on ordering policy and total cost of an inventory system.

Keywords:

• economic order quantity (EOQ)
• stock-dependent demand
• progressive credit periods

Acknowledgement

The authors would like to thank the anonymous referees for their helpful and constructive suggestions.