An Inventory Model for Deteriorating Items with Two Levels of Trade Credit Taking Account of Time Discounting

This paper presents an extended inventory model of Huang (J. Oper. Res. Soc. 54, 1011–1015, 2003), which investigated the retailer’s optimal inventory policy under two levels of trade credit. Herein, we consider the impact of a replenishment policy on the timing of the cash flows associated with payments to suppliers and revenue streams from customers. That is, the same cash amount will possess different money value at different future time. To see this, we adopt the more appropriate net present value (NPV) object instead of the average cost objective. In addition, the deteriorating effects will be incorporated in this inventory model, and the time to deterioration of each item follows an exponential distribution. The discounted cash flow (DCF) approach is used to derive the optimal solution in this study. Furthermore, we first show that the optimal solution not only exists bus also is unique. Then, we provide a theorem to locate the optimal ordering policy. Finally, a numerical example for illustration is provided.