Optimal inventory policy under different supplier credit policies

The purpose of this paper is to investigate the effect of supplier credit policies on the optimal order quantity within the economic order quantity framework. The supplier credit policies addressed in this paper 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 favorable credit terms to encourage customers to order large quantities. In other words, the favorable credit terms apply only at large order quantities and are used in place of quantity discounts. As shown, supplier credit policies in some cases can lead to substantially different order quantities from classical economic order quantities. Numerical examples are used to illustrate the effects of different credit policies.