An inventory model for deteriorating items with inflation induced variable demand under two level partial trade credit : A hybrid ABC-GA approach

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Highlights

  • Model has been developed under two level partial trade credit policy.

  • The market demand is induced by inflation and time value of money.

  • Demand decreases with the increase of time, influenced by promotional effort.

  • Utility of promotional cost under trade credit policy is established here.

  • A hybrid algorithm incorporating ABC and GA has been proposed, tested and used.

Abstract

In this research work an inventory model of a deteriorating item is considered under two level partial trade credit policy incorporating inflation and time value of money in a finite planning horizon. Here it is assumed that a wholesaler offers a partial trade credit to a retailer i.e., trade credit period is offered on an portion of the total purchase amount. In turn the retailer also offers a partial trade credit to its customers. Demand of the item linearly decreases with time and influenced by unit selling price of the item. As selling price is influenced by the inflation and time value of money, so the base demand depends on inflation and bank interest rate also. The retailer also introduces some promotional cost to boost the demand of the item. Under this circumstances, marketing decisions are made to maximize the present value of the total profit. On the other hand combining the features of artificial bee colony (ABC) and genetic algorithm (GA), a hybrid algorithm, artificial bee genetic algorithm (ABGA) has been developed to find the most appropriate business strategies for the proposed model. Efficiency of this algorithm is tested and compared with some ABC variants using a set of benchmark test functions. The model has been illustrated with several numerical examples and some managerial insights are outlined.

Section snippets

Introduction and literature review

Due to huge and stiff competition among the business enterprises in the local as well as in the global market, the business enterprises adopt various tolls to sell their products efficiently. Trade credit policy is one of the most effective promotional tools to push a product, which indirectly reduce the selling price of the product. With the novel invention of Goyal (1985), trade credit policy is heavily used in inventory control systems. In Goyal (1985), it is assumed that a supplier offers

Problem description

In the developing countries like India, Bangladesh, Bhutan, Nepal, etc., it is observed that the price of different daily necessary goods changes frequently. Basically this changes occur due to the combined effect of market inflation and discount rate. Discount rate is simply equal to the earning rate interest offered by global bank e.g. Reserve Bank of India. Depending upon the changes of price of an item, the market demand of the item also changes. So to formulate an inventory model under

Notations and assumptions for the proposed model

The following notations and assumptions are used in developing the models.

Model development and analysis

In this model, it is assumed that in each cycle, the retailer offers a conditional partial credit policy i.e., if the retailer’s order quantity is larger than a predefined order quantity Qd, then the wholesaler offers a credit period M to the retailer on a α-fraction of the total purchase amount otherwise no credit opportunity is available for the retailer. On the other hand the retailer offers a credit period N to the customers on a β-fraction of the total purchase amount. Supply is

Solution procedure

For the purpose of continuous optimization and to solve the proposed model a meta heuristic hybrid algorithm, artificial bee genetic algorithm (ABGA) has been proposed combining the features of artificial bee colony (ABC) and genetic algorithm (GA).

Numerical experiments

In this section, to illustrate the proposed model hypothetically, three different real life problems are considered and the problems are optimized using the proposed ABGA algorithm.

Problem-1 : In Kharagpur, West Bengal, India, there is a new age electronic shop, who sells televisions of a particular brand e.g. Sony and purchases the products from a big wholesaler /supplier of Kolkata, West Bengal, India with a partial credit facility. When a new product of this brand is launched, it is found

Managerial insights

To provide some managerial insights for the decision maker, here two parametric studies are performed with respect to promotional effort, ρ and market inflation, I.

Conclusion

For the first time an inventory model has been developed for the deteriorating items with inflation and time value of money induced base demand under two level partial trade credit policy in a finite planning horizon, where a wholesaler offers a delay period to a retailer on some portion of the total purchase amount and in turn the retailer also follow up the same as the wholesaler for the customers. In addition the retailer also introduces some promotional cost to boost the demand of the item.

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    No author associated with this paper has disclosed any potential or pertinent conflicts which may be perceived to have impending conflict with this work. For full disclosure statements refer to https://doi.org/10.1016/j.engappai.2019.06.013.

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