In many circumstances retailer is not able to settle the account as soon as items are received. In that scenario supplier can offer two promotional schemes namely cash discount and /or a permissible delay to the customer. In this study, an EOQ model is developed when units in inventory deteriorate at a constant rate and demand is stock dependent. The salvage value is associated to deteriorated units. An algorithm is given to find the optimal solution. The sensitivity analysis is carried out to analyze the effect of critical parameters on optimal solution. | Yugoslav Journal of Operations Research Volume 20 (2010), Number 1, 145-156 AN EOQ MODEL FOR DETERIORATING ITEMS UNDER SUPPLIER CREDITS WHEN DEMAND IS STOCK DEPENDENT Nita H. SHAH, Poonam MISHRA Department of Mathematics, Gujarat University, Ahmedabad Gujarat, India nita_sha_h@ Received: February 2008 / Accepted: May 2010 Abstract : In many circumstances retailer is not able to settle the account as soon as items are received. In that scenario supplier can offer two promotional schemes namely cash discount and /or a permissible delay to the customer. In this study, an EOQ model is developed when units in inventory deteriorate at a constant rate and demand is stock dependent. The salvage value is associated to deteriorated units. An algorithm is given to find the optimal solution. The sensitivity analysis is carried out to analyze the effect of critical parameters on optimal solution. Keywords : Deterioration, salvage value, cash discount, trade credit, stock dependent demand. 1. INTRODUCTION Classical inventory Economic Order Quantity (EOQ) model is based on the assumption that the retailer settles the accounts as soon as items are received in his inventory. Practically, this is not possible for retailer every time therefore supplier can offer a cash discount and / or a permissible delay to the retailer if the outstanding amount is paid within the allowable fixed settlement period. For example, the supplier offers 3 % discount off the unit purchase price if the payment is made within 15 days; otherwise full price of items is due within 30 days. This credit term is usually denoted as “3/15, net 30” (, see Brigham (1995, p. 741)). Goyal (1985) derived an EOQ model under the conditions of permissible delay in payments. Shah (1993) and Aggarwal and Jaggi (1995) extended Goyal’s model to allow for deteriorating items. Jamal et al. (1997) then further generalized the model to 146 N., H., Shah, P., Mishra / An EOQ Model for .
