1. We consider a single product.
2. Delivery rate L is larger than demand rate D.
3. The elapsed time until the contingency occurs, τ , is a random
variable and assumed to be exponentially distributed with a
mean of 1/λ.
4. The unit retail price of the products sold during the credit
period is deposited in an interest bearing account with the
rate Ie. At the end of this period, the credit is settled and the
retailer starts paying the interest paid for the items in stock
with the rate, Ip.
5. If products are defective due to contingency in delivery, the
retailers need to find other supply sources to recover these
defective products. It incurs a defective cost, s.