AN EOQ MODEL FOR PROGRESSIVE PAYMENT SCHEME UNDER DCF APPROACH

Abstract

An attempt is made to formulate optimal ordering policies for the retailer when the supplier offers progressive credit periods to settle the account. We define progressive credit periods as follows: If the retailer settles the outstanding amount by M, the supplier does not charge any interest. If the retailer pays after M but before N(M < N), then the supplier charges the retailer on the un-paid balance at the rate Ic 1. If the retailer settles the account after N, then he will have to pay an interest rate of Ic 2 ( Ic 2 > Ic 1). The objective function to be optimized is considered as present value of all future cash-out-flows. An algorithm is given to find the flow of optimal ordering policy. Analytic proofs are discussed to study the effect of various parameters on an objective function.