Optimal pricing, shipment and payment policy for an integrated supplier-buyer inventory model with two-part trade credit

In this article, we develop an integrated supplier–buyer inventory model with the assumption that the market demand is sensitive to the retail price and the supplier adopts a trade credit policy. The trade credit policy discussed in this paper is a ‘‘two-part’’ strategy: cash discount and delayed payment. That is, if the buyer pays within M1, the buyer receives a cash discount; otherwise, the full purchasing price must be paid before M2, where M2 > M1 P 0. The objective of this research is to determine the optimal pricing, ordering, shipping, and payment policy to maximize the joint expected total profit per unit time. An iterative algorithm is established to obtain the optimal strategy. Furthermore, numerical examples and sensitivity analysis are presented to illustrate the results of the proposed model and to draw managerial insights. 2007 Elsevier B.V. All rights reserved.