An EOQ Model with Freight Rate Linked to Order Quantity and Two- part Trade Credit

Trade credit and freight rate discounts are often adopted as marketing strategies by suppliers to drive larger order size. Also, trade credit is an important proportion of company finance especially for small businesses. However, the retailer's carrying cost increase for holding large quantities of inventory. In this paper, a trade-off from trade credit and freight rate discounts is focused. An economic ordering quantity (EOQ) model is developed, wherein the market demand is sensitive to the selling price. A shipping-quantity-dependent freight cost and a two-part trade credit are offered by the supplier. The solution procedures are provided for finding the optimal pricing, order quantity, as well as shipment and payment policies, and illustrated with numerical examples. The sensitivity of the optimal results with respect to those parameters which directly influence the retailer's performance is also examined.