The optimal integrated inventory policy with price-and-credit-linked demand under two-level trade credit

In this paper, we proposed a generalized, integrated, supplier–retailer inventory model using a trade credit policy. The trade credit policy adopted here is a two-level trade credit policy in which the supplier offers the retailer a permissible delay period M, and the retailer in turn provides customers a permissible delay period N. Cases where M > N and M ⩽ N are explored thoroughly. In addition, the demand rate is assumed to be a function of both retail price and the customers’ credit period. Consequently, this paper deals with the problem of determining the optimal retail price, economic order quantity, and the number of shipments from the supplier to the retailer in one production run for an integrated inventory system under both two-level trade credit and price-and-credit-linked demand rate. Algorithms are developed in order to determine the joint optimal policies. Numerical examples are presented to illustrate the proposed models, as well as sensitivity analysis of key parameters.

Research highlights
► We built an integrated inventory model with a two-level trade credit policy.
► The credit period offered by the supplier can be longer (or shorter) than the credit period offered by the retailer.
► A longer delay payment period provided by retailer leads to a higher demand rate and a lower retail price.
► A longer delay payment period provided by supplier causes the retailer to shorten the replenishment cycle length.