Optimal price discounting and lot-sizing policies for perishable items in a supply chain under advance payment scheme and two-echelon trade credits

Many researchers have assumed that a retailer announces price discount, to motivate market sales, when he has competition in markets, unanticipated surplus in inventory, or change in the production run of a product. But, in real life situations, there are retailers who announce price discount offer under advance payment (AP) scheme prior to the selling period. Due to the advancement of internet and online money transactions, the AP scheme is common and useful to decrease the estimation error in demand and to increase the market sales. When the items are arrived to the inventory, the priority will be given to the customers who use AP scheme. This paper considers a supply chain where the supplier provides the retailer a full trade credit period for payments whereas the retailer offers the partial trade credit to his customers. I intend to develop an economic-order-quantity (EOQ)-based model with perishable items in order to investigate the retailer's inventory system as a cost minimization problem under AP scheme and two-echelon trade credit option. Mathematical theorems are developed to determine optimal price discounting and lot-sizing policies and a lot of managerial phenomena are obtained through numerical examples. (c) 2012 Elsevier B.V. All rights reserved.