Replenishment decisions under two‐level credit policy for flexible credit linked demand

Trade credit affects the conduct of business significantly for many reasons. For the supplier who offers trade credit, it is an effective means of price discrimination as well as efficient method to stimulate the demand of his products. Trade credit in the form of permissible delay in payments has direct influence on inventory as well as on the demand of an item. Unfortunately, the influence of credit period on demand has received very little attention in the literature, whereas in reality, length of the offered credit period has positive influence on the demand rate which may be instant or delayed. Hence, to consider the flexible influence of trade credit on the demand of an item, a discrete logistic credit linked demand function has been developed which takes care of both the instant as well as delayed impact of the credit period on the demand rate. Based on the EOQ model, this paper analyses the problem of the retailer who has to decide his trade credit period and cycle length simultaneously under the two levels of trade credit policy. An example is given to illustrate the theoretical results. Computational results provide some interesting policy implications.