AN EPQ MODEL FOR DETERIORATING ITEMS WITH PRICE DEPENDENT DEMAND AND TWO LEVEL TRADE CREDIT FINANCING

Abstract

In practice, trade credit induces more sales over time by allowing customers to purchase without immediate cash. More often manufacturers offer a permissible delay on total purchase amount to the credit-worthy retailers. This is called up-stream full trade credit. On the other hand, the retailers frequently request its credit-risk customers to pay a fraction of the total purchase amount at the time of purchase and the remaining balance must be paid after the permissible delay. This is called down-stream partial trade credit. The purpose of this paper is to establish an economic production quantity (EPQ) model for deteriorating items with both up-stream and down-stream trade credits. The associated profit function is maximized with respect to selling price and cycle time using classical optimization. At the end of the paper, a numerical example and sensitivity analysis are provided to illustrate the features of the proposed model.