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Discrete Dynamics in Nature and Society
Volume 2013, Article ID 917958, 22 pages
http://dx.doi.org/10.1155/2013/917958
Research Article

Two-Level Credit Financing for Noninstantaneous Deterioration Items in a Supply Chain with Downstream Credit-Linked Demand

Institute of Systems Engineering, School of Economics and Management, Southeast University, Nanjing 210096, China

Received 22 May 2013; Revised 30 July 2013; Accepted 31 July 2013

Academic Editor: Zhigang Jiang

Copyright © 2013 Yong He and Hongfu Huang. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Trade credit financing is a useful tool in business today, which can be characterized as the agreement between supply chain members such as permissible delay in payments. In this study, we assume that the items have the property of noninstantaneous deterioration and the demand is a function of downstream credit. Then, an EOQ model for noninstantaneous deterioration is built based on the two-level financing policy. The purpose of this paper is to maximize the total average profit by determine the optimal downstream credit period, the optimal replenishment cycle length, and the optimal ordering quantity per cycle. Useful theorems are proposed to characterize the method of obtaining the optimal solutions. Based on the theorems, an algorithm is designed, and numerical tests and sensitive analysis are provided. Lastly, according to the sensitive analysis, managerial insights are proposed.