The EOQ model for two-echelon trade credit derived without derivatives

Abstract

This article explores the problem of an inventory model in which the supplier offers the retailer a delay period and in return the retailer provides a delay period to their customers. In a recent paper, Huang [17] considered such problems. However, the optimal solution in Huang [17] has been derived using differential calculus which is difficult for reader who lacks knowledge of calculus. Consequently, the purpose of this article is twofold. First, this article shows that the optimal solution can be derived without the classical technique of optimization, in other words, without differential calculus. Second, a simple algebraic method to locate the optimal solution is developed without reference to derivatives. Finally, sensitivity analysis of the optimal solution with respect to major parameters is carried out.

Keywords and phrases:

• Two-echelon
• trade credit
• inventory
• permissible delay in payments