Impacts of expiration date on optimal ordering policy for deteriorating items under two-level trade credit: Quantity loss and quality loss

Abstract

Practically, two-level trade credit is usually applied to stimulate the retailer’s order incentive for deteriorating items with expiration date. Nevertheless, previous studies ignore to identify both quantity loss and quality loss derived from expiration date, and lack of examining whether these joint losses impact effectiveness of two-level trade credit. Thus, this paper firstly builds an inventory model for deteriorating items with expiration date, which accurately determines the retailer’s optimal response when involving both quantity and quality losses. (1) For given expiration date, this paper identifies the phenomenon of limit effect and its occurred conditions, referring that the retailer’s optimal order cycle for deteriorating items equals its expiration date; (2) this paper validates the scope of limit effect, below which deteriorating items should be optimally replenished with its expiration date. In addition, two-level trade credit is further incorporated into deteriorating items, resulting in two types of expiration date scenarios including lower and higher. Specifically, for the given expiration date, upstream credit period can affect the retailer’s selection of operational policies, and the occurrence of limit effect. And along with the increase of expiration date, more operational policies can be assumed by the retailer.

Keywords:

• Inventory
• finance
• logistics
• deterioration
• trade credit
• expiration date

Acknowledgements(s)

The authors are extremely grateful to the anonymous referees for their valuable and helpful comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

The research presented in this paper is supported by the National Natural Science Foundation Project of China (71701049, 71871159), the National Social Science Fund of China (19BGL096), Innovation Strategy Research Program of Fujian Province (2020R0017), Natural Science Foundation of Fujian Province (2020J05124) and supported in part by Fujian science and technology economic integration service platform.