International Journal of Advanced Culture Technology

The International Promotion Agency of Culture Technology (국제문화기술진흥원)
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The Effect of the Credit Period on Inventory Policy under Trade Credit with Ordering Cost inclusive of a Freight Cost

  • Shinn, Seong-Whan (Department of Advanced Materials & Chemical Engineering, Halla University)
  • Received : 2021.07.12
  • Accepted : 2021.08.28
  • Published : 2021.09.30
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Abstract

In this paper we analyze the effect of the credit period on inventory policy under trade credit with ordering cost including a fixed cost and freight cost, where the freight cost has a quantity discount. For marketing purposes, some supplier offers credit period to his buyer to stimulate the demand for the product he produces. The delay in payments during the credit period has the effect of reducing the buyer's capital opportunity cost. It is also assumed that the buyer pays the freight cost for the order and hence, the ordering cost consists of a fixed ordering cost and a variable freight cost which depends on the order quantity. As a result, the possibilities of trade credit and discounts on freight costs are expected to play an important role in the buyer's inventory policy. Based on the economic order quantity inventory model, we analyze how the buyer can determine the optimal inventory policy and we examine the effect of the length of credit period on the buyer's inventory policy.

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References

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