Retailer’s optimal ordering policy for deteriorating items with maximum lifetime under supplier’s trade credit financing

Abstract

Many products such as fruits, vegetables, pharmaceuticals, volatile liquids, and others not only deteriorate continuously due to evaporation, obsolescence, spoilage, etc. but also have their expiration dates (i.e., a deteriorating item has its maximum lifetime). Although numerous researchers have studied economic order quantity (EOQ) models for deteriorating items, few of them have taken the maximum lifetime of a deteriorating item into consideration. In addition, a supplier frequently offers her/his retailers a permissible delay in payments in order to stimulate sales and reduce inventory. There is no interest charge to a retailer if the purchasing amount is paid to a supplier within the credit period, and vice versa. In this paper, we propose an EOQ model for a retailer when: (1) her/his product deteriorates continuously, and has a maximum lifetime, and (2) her/his supplier offers a permissible delay in payments. We then characterize the retailer’s optimal replenishment cycle time. Furthermore, we discuss a special case for non-deteriorating items. Finally, we run several numerical examples to illustrate the problem and provide some managerial insights.