Two-warehouse Inventory Model for Deteriorating Items Under Two - Level Trade Credit Financing

Abstract

In this study, we consider an inventory system where both retailers and customers are presumed to be credit – worthy. Therefore, the retailer is given full trade credit of M days after taking the delivery of the consignment. Simultaneously, the retailer gives customers full trade credit of N days, where M > N. In most business transactions involving trade credit financing, bulk orders are involved which normally exceeds the stocking capacity of the own warehouse (OW) that necessitate the renting of another warehouse (RW) where excess of the goods ordered will be kept, and therefore, upstream and downstream trade credits are
proposed to help in stimulating the demand of retailers and customers respectively. This is to decrease the on – hand inventory level which translates to reduction in holding cost. The relevant cost functions for the inventory system are determined and a numerical example is given. Sensitivity analysis is carried out to see the effect of changes in parameters on the optimal solution of the model.