Optimal order quantity with endogenous discounted partial advance payment and trade-credit for inventory model with linear time varying demand

DOI10.1504/IJMOR.2021.120104MaRDI QIDQ2113798zbMATH OpenOpenAlexFDO

Authors Swati Agrawal, Snigdha Banerjee, Rajesh K. Gupta

Publication date 14 March 2022

Published in International Journal of Mathematics in Operational Research (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1504/ijmor.2021.120104

zbMATH Keywords

advance paymentcredit periodendogenous discountinventorylinear time dependent demand ratesupply chain

Mathematics Subject Classification ID

Inventory, storage, reservoirs (90B05)

Review text

Summary: When buyers seek extended credit periods from relatively less secure suppliers, the supplier requires co-operation from the buyer for purchase of raw materials, etc., in terms of partial advance payment. For a single buyer single supplier supply chain, we develop an inventory model with a hybrid payment policy combining discounted advance payment to supplier with the supplier permitting interest free delay period to the buyer when buyer has the option to make advance payment. For the advance, supplier offers discount and may allow the buyer to set the discount rate and the advance proportion. For a linear demand function in such a scenario, we maximise buyer's net profit rate through optimal choice of payment policy and the buyer's replenishment. We consider two situations with discount: 1) exogenous; 2) endogenous for the buyer. Optimal solution is characterised theoretically. Numerical example reveals that by choosing advance proportion appropriately, the profit rate in the endogenous case can be higher than that in the exogenous case even with lower discount.

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