Dynamic Ordering Policies under Partial Trade Credit Financing

Partial trade credit is widely used in practice since there exit distinctions between trading partners in financial status, the level of cooperation and negotiation power etc.. In this paper, we consider a periodic-review inventory control problem where a retailer with cash flow constraints sells a single product to the market with random demand. In each period, the retailer, offered partial trade credit by the suppler, can use his own capital and/or borrow a short-term loan from a lender to order the product, and the surplus cash (if any) also can be deposited to earn risk-free interest. The objective is to maximize the retailer's expected terminal cash at the end of the planning horizon. We analyze the optimal polices for given initial capital level and inventory level. Finally, numerical studies are given to demonstrate the model.