Controllable carbon emissions in an inventory model for perishable items under trade credit policy for credit-risk customers

Abstract

The incorporation of credit risk and environmental regulations has been attended to considerably in the literature of inventory models; however, papers rarely developed a model considering both of these issues concurrently. Thus, jointly incorporate these two challenges makes sense to address the mentioned gap in the literature and outline insights for future works in practice. This study develops an inventory model for deteriorating items which (a) items deteriorate continuously and have their specific expiration dates; (b) carbon is emitted due to ordering and warehousing operations when a cap-and-tax policy is regulated and emissions can be controlled by investing in green technology; (c) two levels of trade credit is offered when the customer must pay a prepayment. The purpose of this study is to compare the retailer's total profit for different values of upstream and downstream trade credit periods to achieve efficient pricing and replenishment decisions. An algorithm is developed to find the optimal value for the investment in green technology. Numerical experiments and sensitivity analysis are elaborated to validate the mathematical formulation. Finally, findings are summarized and managerial implications are addressed.