THE EOQ MODELS UNDER BOTH OPTIONS OF CASH DISCOUNT AND DELAY IN PAYMENT

Abstract

In this paper, we propose a new EOQ model considering both options of cash discount and delay in payment and allowing two-stage payments. In business transactions, the retailer may obtain cash discount when the payment is done before cash discount due date designated by the supplier. On the other hand, the supplier may offer a fixed credit period to encourage the retailer\'s demand since the retailer may keep accumulating revenue and earning interest during the credit period before making its payment. The studies in the literature allow only one between either of the two options. Considering both options and allowing two-stage payments, this study proposes a new EOQ model and two effective algorithms that assist the retailer to obtain the optimal replenishment and payment strategy. Our numerical experiments show that the proposed EOQ model with two-stage payment strategy could be superior to the single-stage ones in the literature.