Optimal replenishment decisions for perishable products under cash, advance, and credit payments considering carbon tax regulations

Abstract

This study integrates payment schemes and inventory decisions under sustainability issues. In view of legislation to reduce carbon emissions, the aim of the paper is to gain insights into how payment options affect inventory decisions for perishable products under the widely-used carbon tax regulation. Precisely, this paper establishes an inventory replenishment model from the buyer`s perspective in which: (a) the buyer is charged for each unit carbon emissions with a constant tax rate (i.e., carbon-tax regulation) (b) the seller offers one of three commonly-used payment schemes (i.e., advance payment, cash payment, and credit payment), and (c) the product gradually degrades with time and cannot be sold after its expiration date (or sell-by date). Then, the existence and uniqueness of the optimal solution under each payment term is proven, which simplifies the search for the global solution to a local minimum. Finally, numerical experiments are conducted and the results among those three payment schemes are compared in order to answer the following two major questions: How does the payment scheme affect carbon emissions? Which payment scheme is the least expensive for the buyer, when carbon taxes are charged? Computational results provide evidences that the advance payment in companion with price discount is the least costly for the buyer but leads to highest carbon emissions per unit time among all three payment schemes. On the other hand, the credit payment is the best of all three payment schemes to curb carbon emissions and thus protect the climate and environment.