Eoq Model with Permissible Delay in Payments under Progressive Interest Scheme

The main purpose of this paper is to investigate the retailer’s optimal replenishment policy under permissible delay in payments within the economic order quantity (EOQ) framework. Previously published articles dealing with optimal order quantity with permissible delay in payments assumed that the supplier only offers the retailer single trade credit period. In fact, most suppliers frequently offer retailers (or customers) a two trade credit period to attract new retailers (customers) from their competitors. In this paper, the retailer faces a progressive interest charge from the supplier. If the retailer pays the outstanding balance by the grace period (say, M), the supplier does not charge any interest to the retailer but if the outstanding amount is paid after M, but by N (with N > M), then the supplier charges the retailer the lower interest rate of Ic 1 on the unpaid balance. If the retailer pays the outstanding amount after N, the supplier charges the regular interest rate of Ic 2 (with Ic 2 > Ic 1 ). We first establish an appropriate EOQ model for a retailer when the supplier offers a progressive interest charge, and then provide an easy solution procedure to the problem. We also provide numerical example to illustrate the proposed model and sensitivity analysis is also carried out.