Inventory management under date-terms supplier trade credit with stochastic demand and leadtime

Executives and academics alike are expressing increasing interest in supplier trade credit. We consider a form of credit known as ‘date-terms’ where the credit period extends to a specified date in the month following the invoice. We extend published research to consider both demand and supply uncertainty, employing a gamma distribution to model demand during the leadtime and reorder period. Taking an applied perspective, we evaluate four heuristics against an optimal solution for the case where pragmatic restrictions are placed on the reorder period. We evaluate how the reorder period and the performance of heuristics are affected by various environmental parameters (based on industrial data) and comment on the ramifications of this form of trade credit.