An inventory policy under trade credit from the perspective of the annual net profit

Abstract

This article discusses the economic order quantity (EOQ) under conditions of permissible delay in payments. In many inventory systems, suppliers offer some fixed credit periods to retailers for settling the payment for the goods. The existence of the credit period serves to reduce the cost of holding stock to the retailer. This study explores a deterministic inventory model for an item for which the supplier permits a fixed delay in settling the account. First, we develop a model to determine an optimal ordering policy from the perspective of the annual net profit. Second, we show that the annual net profit function possesses some kinds of concavities. With those concavities, a solution procedure is presented to determine the optimal order quantity. Finally, numerical examples are given to illustrate the procedure.

Keywords:

• Inventory
• trade credit
• EOQ