Inventory management with online payment and preorder discounts

Abstract

PurposeThe advancement of technology opens many opportunities for retailing businesses to increase their profit through innovative strategies, such as discount offers, preorder programs and online payment services. The purpose of this study is to investigate decision-making methods for retailers who sell deteriorating products that utilize an e-commerce platform and offering preorder.Design/methodology/approachThe authors study the optimum price and replenishment cycle when multiple discounts policy is implemented for customers when they purchase during the preorder period and make the payment via an online system. The proposed economic order quantity model works for noninstantaneous deteriorating items that will maximize the total profit. Moreover, it considers the effect of selling price and advertisement on customer demand. The concavity of the profit function is proved. Then, a comparison is carried out between the traditional payment system and online payment. Finally, two numerical examples and the sensitivity analysis are performed.FindingsThe results show the benefit of the system with online payment compared to the traditional one. Further analysis shows that the total profit increases when the frequency of advertisement, interest from the banking company, location perimeter and the nondeterioration time increase.Originality/valueThe proposed model guides e-commerce retailers optimizing the price and inventory decision when they offer a discount, preorder program and online payment service. No researcher has undergone a study with this complexity.