Optimal Ordering Policy with Stock-Dependent Demand Rate Under Retailer’s Two Stages Trade Credit Financing Using Discounted Cash Flow (DCF) Approach

Abstract

Many researchers have assumed one stage trade credit financing. In this study, we considered two levels of trade credit policy using Discounted Cash Flow (DCF) approach. Demand rate is considered to be stock-dependent for the first level (credit demand) and constant for second level (cash demand). Mathematical models are derived under two different circumstances i.e., case I: The permissible delay period is less than or equal to the cycle time and case II: The permissible delay period is greater than or equal to the cycle time for settling the account. An algorithm is provided to determine the optimal order quantity and annual profit. In addition, numerical examples are presented to demonstrate the solution process. Finally, sensitivity analysis of the optimal solution is discussed with respect to different parameters.