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Optimal manufacturer's pricing and lot‐sizing policies under trade credit financing
Author(s) -
Teng JinnTsair,
Ouyang LiangYuh,
Chen LiangHo
Publication year - 2006
Publication title -
international transactions in operational research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.032
H-Index - 52
eISSN - 1475-3995
pISSN - 0969-6016
DOI - 10.1111/j.1475-3995.2006.00561.x
Subject(s) - economic order quantity , trade credit , economics , investment (military) , order (exchange) , sizing , economic production quantity , unit (ring theory) , microeconomics , production (economics) , function (biology) , demand curve , business , finance , mathematics , supply chain , art , mathematics education , marketing , evolutionary biology , politics , political science , law , visual arts , biology
In this paper, we extend Goyal's economic order quantity (EOQ) model to allow for the following four important facts: (1) the manufacturer's selling price per unit is necessarily higher than its unit cost, (2) the interest rate charged by a bank is not necessarily higher than the manufacturer's investment return rate, (3) the demand rate is a downward‐sloping function of the price, and (4) an economic production quantity (EPQ) model is a generalized EOQ model. We then establish an appropriate EPQ model accordingly, in which the manufacturer receives the supplier trade credit and provides the customer trade credit simultaneously. As a result, the proposed model is in a general framework that includes numerous previous models as special cases. Furthermore, we provide an easy‐to‐use closed‐form optimal solution to the problem for any given price. Finally, we develop an algorithm for the manufacturer to determine its optimal price and lot size simultaneously.