A prepayment installment decision support framework in an inventory system with all-units discount against link-to-order prepayment under power demand pattern. (1st March 2023)

• Record Type: Journal Article
• Authors: Khan, Md. Al-Amin; Cárdenas-Barrón, Leopoldo Eduardo; Treviño-Garza, Gerardo; Céspedes-Mota, Armando
• Is Part Of: Expert systems with applications. Volume 213:Part C(2023)
• Publication Date: 2023-03-01
• Subjects: Power demand -- Pricing -- Backordering -- Quantity-based prepayment -- Installment policy -- All-units discount; Expert systems (Computer science) -- Periodicals; Systèmes experts (Informatique) -- Périodiques; Electronic journals; 006.33
• DOI: 10.1016/j.eswa.2022.119247
• Languages: English
• ISSNs: 0957-4174

Abstract

Highlights: This paper proposes an installment plan to pay when an all-units discount is offered. Clients' demand is interconnected with time and price multiplicatively. A transaction cost is incurred to accomplish a prepayment installment to the supplier. Profitable and nonprofitable cases are explored considering all purchased quantities. It is profitable to do the prepayment through a single installment. Abstract: Prepayment is a strategy of preparedness for a company that incurs relatively low costs but provides immense benefits in case of delivery disruptions. This paper introduces a decision support framework for a retailer's best installment policy to prepay when an all-units discount is offered against a purchased quantity-sensitive prepayment regulation from the supplier/manufacturer of a product. An inventory procedure of a single retailer is studied for a product whose clients' demand is interconnected with time and price multiplicatively, where the impacts of time in the power form and the impacts of price in the exponential form are taken into consideration. A transaction cost is incurred by the retailer to accomplish a prepayment installment to the supplier/manufacturer. The inventory procedure formulates a mixed-integer optimization problem where the utmost objective is to maximize the retailer's gross profit by achieving the optimal strategies. Deriving all the necessary analytical results, the profitable and non-profitable cases of the formulated problem are explored by taking into account all the possibilities of the best purchased quantity under a link-to-order prepayment and discount scheme. The computational results show that it is more profitable for the retailer to accomplish the prepayment through a single installment when the total capital cost from the prepayment is lower than the transaction cost of a single installment. A comparison of the profits confirms that the all-units discount against a link-to-order prepayment regulation is not only more economical but also it helps the retailer to make some nonprofit businesses profitable.