An Economic Order Quantity Model with Credit-Dependent Demand under Two-Level Trade Credit and Supplier Credits Linked to Order Quantity

A supplier is usually willing to provide the retailer a permissible delay of payments if the retailer orders a large quantity under a business trading environment. Similarly, a retailer might offer a credit period to its customers to motivate customers to increase their demand. In order to reflect these real life phenomena, this research establishes an appropriate inventory model with credit-dependent demand under two-level trade credit and permissible delays in payments linked to order quantity. The objective is to determine the optimal customer’s trade credit period, order quantity, and replenishment time to maximize the total profit of the retailer. An easy-to-use algorithm to find the optimal solutions is to provide and implement with a graphical user interface. Numerical examples are given to illustrate the theoretical results and the sensitivity analysis of parameters on the optimal solutions. Some managerial insights are obtained. For instance, the retailer should shorten the replenishment cycle and reduce the order quantity if the interest charged is large. © 2022, Tamkang University. All rights reserved.