Retailer’s inventory system in a two-level trade credit financing with selling price discount and partial order cancelations

In today’s fast marketing over the Internet or online, many retailers want to trade at the same time and change their marketing strategy to attract more customers. Some of the customers may decide to cancel their orders partially with a retailer due to various reasons such as increase in customer’s waiting time, loss of customer’s goodwill on retailer’s business, attractive promotional schemes offered by other retailers etc. Even though there is a lag in trading and order cancelation, this paper attempts to develop the retailer’s inventory model with the effect of order cancelations during advance sales period. The retailer announces a price discount program during advance sales period to promote his sales and also he offers trade credit financing during the sales periods. The retailer availing trade credit period from his supplier offers a permissible delay period to his customers. The customer who gets an item has allowed paying on or before the permissible delay period which is accounted from the buying time rather than the start period of inventory sales. This accounts for significant changes in the calculations of interest payable and interest earned by the retailer. The retailer’s total cost is minimized so as to find out the optimal replenishment cycle time and price discount policies through a solution procedure. The results derived in mathematical theorems are implemented in numerical examples and sensitivity analyses on several inventory parameters are obtained.