Optimal Replenishment Decisions under Two-Level Trade Credit with Partial Upstream Trade Credit Linked to Order Quantity and Limited Storage Capacity

This paper extends the previous economic order quantity (EOQ) models under two-level trade credit such as Goyal (1985), Teng (2002), Huang (2003, 2007), Kreng and Tan (2010), Ouyang et al. (2013), and Teng et al. (2007) to reflect the real-life situations by incorporating the following concepts: (1) the storage capacity is limited, (2) the supplier offers the retailer a partially upstream trade credit linked to order quantity, and (3) both the dispensable assumptions that the upstream trade credit is longer than the downstream trade credit and the interest charged per dollar per year is larger than or equal to the interest earned per dollar per year are relaxed. We then study the necessary and sufficient conditions for finding the optimal solution for various cases and establish a useful algorithm to obtain the solution. Finally, numerical examples are given to illustrate the theoretical results and provide the managerial insights.

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