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Optimal ordering policies for a retailer who offers distinct trade credits to its good and bad credit customers

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  • Teng, Jinn-Tsair

Abstract

In practice, to reduce default risks, a retailer frequently offers its bad credit customers a partial trade credit, in which the retailer requests its customers to pay a portion of the purchase amount at the time of placing an order as a collateral deposit, and then grants a permissible delay on the rest of the purchase amount. By contrast, the retailer usually provides a full trade credit to its good credit customers without the collateral deposits. For generality, in this paper, I establish an economic order quantity (EOQ) model for a retailer who receives a full trade credit by its supplier, and offers either a partial or a full trade credit to its customers. The proposed model is in a general framework that includes numerous previous models as special cases. I then analyze the characteristics of the optimal solution, and provide an easy-to-use closed-form optimal solution. Finally, I use a real-world inventory problem to illustrate the proposed model and its optimal solution.

Suggested Citation

  • Teng, Jinn-Tsair, 2009. "Optimal ordering policies for a retailer who offers distinct trade credits to its good and bad credit customers," International Journal of Production Economics, Elsevier, vol. 119(2), pages 415-423, June.
    • Handle: RePEc:eee:proeco:v:119:y:2009:i:2:p:415-423
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    References listed on IDEAS

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    1. Goyal, Suresh Kumar & Teng, Jinn-Tsair & Chang, Chun-Tao, 2007. "Optimal ordering policies when the supplier provides a progressive interest scheme," European Journal of Operational Research, Elsevier, vol. 179(2), pages 404-413, June.
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    9. J-T Teng & S K Goyal, 2007. "Optimal ordering policies for a retailer in a supply chain with up-stream and down-stream trade credits," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 58(9), pages 1252-1255, September.
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