Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 232, Issue 2, Pages 315-321Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2013.06.027
Keywords
Supply chain management; Inventory; Deteriorating items; Maximum lifetime; Trade credit
Funding
- Tamkang University in Taiwan
- ART for research from the William Paterson University of New Jersey
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Due to evaporation, obsolescence, spoilage, etc., some products (e.g., fruits, vegetables, pharmaceuticals, volatile liquids, and others) not only deteriorate continuously but also have their expiration dates. To attract new buyers and increase sales, a seller frequently offers its buyers a trade credit period to settle the purchase amount. There is no interest charge to a buyer if the purchasing amount is paid within the credit period, and vice versa. On the other hand, granting a credit period from a seller to its buyers increases default risk. In this paper, we propose an economic order quantity model for a seller by incorporating the following relevant facts: (I) deteriorating products not only deteriorate continuously but also have their maximum lifetime, and (2) credit period increases not only demand but also default risk. We then characterize the seller's optimal credit period and 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. (c) 2013 Elsevier B.V. All rights reserved.
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