A multi‐item supply chain with credit periods and weight freight cost discounts

It is possible to realize considerable savings by aggregating the replenishment of a variety of items in a multi‐item supply chain. This joint multi‐item replenishment policy has already been widely applied in a variety of industries. This type of policy may make it possible for the retailer to take advantage of transport economies of scale by the utilization of freight discounts for greater weight. In addition, a supplier will often extend forward financing to a retailer. In this paper, a multi‐item supply chain with a credit period and weight freight cost discounts is considered. The retailer bears the freight costs, but the freight carrier provides freight‐transport discounts that are positively related to the weight of the cargo transported. From both the individual and the channel perspectives, we deal with the dual problems of determining the ideal supplier credit period, and of the best way for the retailer to make multi‐item replenishment and pricing decisions, while still maximizing profits. We outline the optimal properties and develop algorithms for solving the problems described, as well as discuss the impact of the freight cost discounts, the inventory holding cost, and the interest rate on the behavior of both parties.