An EOQ model for deteriorating items with progressive payment scheme under DCF approach

In this paper an EOQ model is developed in which items in inventory deteriorate at a constant rate and supplier offers the progressive trade credit to the retailer. A progressive trade credit is defined as follows: If the retailer pays the outstanding amount by M, the supplier does not charge any interest. If the retailer pays after M but before N (N > M), the retailer will have to pay interest charges at the rate Ic1. If the account is settled after N, the retailer will be charged at the rate Ic2 (Ic2 > Ic1). The model is developed under the discounted-cash-flow (DCF) approach. The present value of all future cash-outflows is derived for all three possible scenarios. At the end, a numerical example is given to illustrate the results obtained and sensitivity analysis of various parameters on the optimal solutions is carried out.