OPTIMAL INVENTORY POLICY UNDER DIFFERENT SUPPLIER CREDIT POLICIES

The purpose of this paper is to investigate the effect of supplier cre dit policies on the optimal order quantity within the economic order q uantity framework. The supplier credit policies addressed in this pape r have been neglected in previous work and fall into two categories: ( 1) supplier credit policies where credit terms are independent of the order quantity and (2) supplier credit policies where credit terms are linked to the order quantity. In the latter case, suppliers use favor able credit terms to encourage customers to order large quantities. In other words, the favorable credit terms apply only at large order qua ntities and are used in place of quantity discounts. As shown, supplie r credit policies in some cases can lead to substantially different or der quantities from classical economic order quantities. Numerical exa mples are used to illustrate the effects of different credit policies.