Optimal manufacturer's pricing and lot-sizing policies under trade credit financing

Optimal manufacturer's pricing and lot-sizing policies under trade credit financing

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Article ID: iaor20072671
Country: United Kingdom
Volume: 13
Issue: 6
Start Page Number: 515
End Page Number: 528
Publication Date: Nov 2006
Journal: International Transactions in Operational Research
Authors: , ,
Keywords: manufacturing industries
Abstract:

In this paper, we extend Goyal's economic order quantity (EOQ) model to allow for the following four important facts: (1) the manufacturer's selling price per unit is necessarily higher than its unit cost, (2) the interest rate charged by a bank is not necessarily higher than the manufacturer's investment return rate, (3) the demand rate is a downward-sloping function of the price, and (4) an economic production quantity (EPQ) model is a generalized EOQ model. We then establish an appropriate EPQ model accordingly, in which the manufacturer receives the supplier trade credit and provides the customer trade credit simultaneously. As a result, the proposed model is in a general framework that includes numerous previous models as special cases. Furthermore, we provide an easy-to-use closed-form optimal solution to the problem for any given price. Finally, we develop an algorithm for the manufacturer to determine its optimal price and lot size simultaneously.

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