Optimal retailer's replenishment and payment policies under conditional delay in payment and cash discount

The retailer's replenishment and payment policies was studied under conditional delay in payment and cash discount. It was assumed that the supplier had offered a combination trade credit terms of conditional delay in payment and cash discount to the retailer, and considered that the reality of the retailer's non-instantaneous replenishment. The inventory models were formulated based on the relationship of the trade credit period and replenishment cycle so as to minimize the average total cost. The existence and uniqueness of the optimal policy were proved, and some relevant theorems were derived. Two algorithms were designed to find the optimal replenishment cycle time and payment policies. A numerical example was presented to illustrate the theoretical results, and the sensitivity analysis of the major parameters was performed. The research results showed that the appropriate conditional delay set by supplier set in payment threshold could not only motivate the retailer to increase order quantity, but also attract the retailer to pay for purchases earlier. In addition, the retailer tended to pay as early as possible under the conditions of the shorter time interval between cash discount period and permissible delay period or the larger the cash discount rate. © 2021, Editorial Department of CIMS. All right reserved.