Abstract: With existing inventory models for deteriorating items under trader credit, it was assumed that the credit period M offered by supplier is fixed, or that the demand rate is constant or price-linked, but few of studies considers that demand rate is affected by credit period. However, in reality, credit period N has an effect on demand, and supplier offers credit period M according to the order quantity. Customers buy more items if a retailer gives more credit period, especially for those who lack money at that time, and a retailer orders a larger quantity if more credit period is offered by a supplier. A decentralized inventory model is proposed under credit-linked demands and with the credit period offered by the supplier depending on retailer’s order quantity. Consequently, the problem of determining the optimal credit period M, the optimal order cycle time T, and economic order quantity Q, is dealt with to maximize retailer and supplier‘s profit per unit time. For a special case with deteriorating rate being zero, approximate solutions are developed. Numerical examples and sensitive analysis of the major parameters are presented to illustrate the proposed models. In the analysis, some conclusions are obtained with enlightenment.

Key words: creditlinked demand, inventory model, varying credit period