An optimal replenishment cycle and order quantity inventory model for deteriorating items with fluctuating demand

Abstract

Suppliers often prefer to offer their retailers a delay period in payment to attract more sales and promote revenue in a supply chain. The retailers usually ask their customers to pay a portion of purchasing cost when receiving the product (i.e., a downstream partial trade credit) to reduce the default risk. On the other hand, the suppliers provide discounts for bulk purchases, and the retailer has enough capital to purchase more goods than can be stored in its warehouse. The retailer must store the excess quantities in a rented warehouse if the storage capacity is limited. A two-warehouse inventory system is needed to model this problem. In reality, the demand rate fluctuates with time, and the relevant cost is usually affected by the present value of time. This study focuses on the limited storage capacity inventory model for deteriorating items with fluctuating demand, downstream partial trade credit transactions, and discounted cash-flow considerations. The aim is to find the optimal replenishment cycle and order quantity and keep the present value of the total relevant cost per unit of time as low as possible. We further present numerical examples to demonstrate the applicability and develop managerial insights.