How to determine the optimal length of trade credit for the
seller has received relatively little attention by the researchers. In
this paper, we have originally developed an EPQ model to reflect
the facts: (1) the total unit production cost declines by a factor of
from 10 to 50 percent each time the accumulative production
volume doubles due to learning by doing, (2) trade credit reduces
the buyer's inventory holding cost and attracts new buyers, and
(3) the longer the credit period, the higher the opportunity cost
and default risk. Then we have derived the necessary and sufficient conditions to obtain the optimal solution. In addition, we
have characterized the influence of the parameters to the optimal
solution. For example, if the learning coefficient l is higher, then
the production cost is lower, and the seller can afford to offer a
longer credit period Mn (i.e. more sales), and hence produce larger
lot-size Qn
, and obtain higher annual total profit Πn
(Mn
, Qn
).
Finally, we have provided numerical examples and sensitivity
analysis to illustrate the proposed model and understand managerial
insights. Hence, we have made some innovational and