An Inventory Model with Price-, Time- and Greenness-Sensitive Demand and Trade Credit-Based Economic Communications

Abstract

Background: Price is the most authoritative constituent among the factors shaping consumer demand. Growing consciousness among global communities regarding environmental issues makes greenness one of the key factors controlling demand, along with time, which drives demand in markets. This paper addresses such issues associated with a retail purchase scenario. Methods: Consumer's demand for products is hypothesized to be influenced by pricing, time and the green level of the product in the proposed model. Time-dependent inventory carrying cost and green level-induced purchasing cost are considered. The average cost during the decision cycle is the objective function that is analyzed in trade credit phenomena, involving delayed payment by the manufacturer to the supplier. The Convex optimization technique is used to find an optimal solution for the model. Results: Once a local optimal solution is found, sensitivity analysis is conducted to determine the optimal value of the objective function and decision variables for other impacting parameters. Results reveal that demand-boosting parameters, for instance, discounts on price and green activity, result in additional average costs. Conclusions: Discounts on price and green activity advocate a large supply capacity by boosting demand, creating opportunities for the retailer to earn more revenue.