Impact of inflation and trade credit policy in an inventory model for imperfect quality items with allowable shortages

Retail businesses must constantly evolve with new strategies introduced in order to meet and even to exceed customers’ expectations. This effort can be enhanced by incorporating inspection processes in business routines that will maximize the effectiveness of attempts to sell quality products. Further, permissible delay in payments has certainly been a prominent strategy in today’s business transactions, helping in gaining the financial advantage for both the retailers and the suppliers. Moreover, in order to recognize the proper and exact timing of cash flows associated with an inventory system, inflation and time value of money should also be incorporated. Considering all the above described real life aspects and problems, a model is formulated here to study the combined effect of imperfect quality items, trade credit, shortages, inflation and time value of money on an inventory system. An analytical method is employed to jointly optimize the order quantity and the shortages. To study the behavior and application of the proposed model, a numerical example, including sensitivity analysis, has been analyzed. The potential applications, improving the decision making process of the model introduced can be found in industries like textile, footwear, plastics, electronics, etc.