AN EPQ MODEL FOR DETERIORATING ITEMS UNDER SUPPLIER CREDITS

LINKED TO ORDERING QUANTITY

Types of research work: Original research.

Authors:

MD. Saad Seikh1*, Naila Haque2, Abu Naser Niloy3, Amanat ur Rahman4*
Industrial and Production Engineering, Department of MPE
Ahsanullah University of Science and Technology, Bangladesh
1*saadseikh@gmail.com, 2naila@gmail.com , 3djniloy55@gmail.com ,

4*amanat.rahman.mpe@gmail.com

Keywords: Trade credit, Permissible delay, Deterioration, Economic production quantity

Abstract

During the formulation of EPQ model, it was assumed that the retailer must pay for the items
as soon as retailer takes delivery of goods from a supplier. However, in reality, in case of
business dealings retailers do not pay as soon as they receive products from the suppliers.
Normally retailers are given a fixed time period for settling the amount that they owe to
suppliers for the supplied items. As a result, in this paper, we have established an EPQ model
for deteriorating items, in which the supplier provides a permissible delay to the purchaser
if the order quantity is greater than or equal to a predetermined quantity. Then we have
found the optimal solution and provided an easy-to-use algorithm to find the optimal order
quantity and replenishment time. Finally, several numerical examples are given to
demonstrate the theoretical results.

Scope of your research work: This EPQ model will be able to effectively find out the optimal
replenishment interval and order quantity of a retailer for all those types of tradings under
permissible delay provided by the suppliers, which deal with any kind of deteriorating
products.

Objectives of research: The objective of this research is to deduce optimum product

replenishment time from the total relevant cost (considering ordering cost, holding cost,
deterioration cost, interest payable and interest earned) of a retailer who’s supplier gives a
permissible delay for a specific amount of deteriorating product purchase and to use the
optimum replenishment time for finding the optimum order quantity.

Significance on industrial sector: This model will allow suppliers of deteriorating product
to attract more retailers by giving permissible delay on purchase which will increase their
overall sells. On the other hand using this model the retailers will know how many product
after what period of time they have to order to gain the highest profit. Financial supply chain
management and working capital management are increasingly recognized as important
means to increase profitability in a supply chain. By actively managing payment terms using
this model, suppliers and retailers both can influence financial performance and achieve
significant cost savings.