A CASH DISCOUNT PRICING MODEL WITH SHORTAGE IN SUPPLY TO INCREASE VENDOR’S PROFIT.

ABSTRACT
Studies had been carried out on inventory models using the (EOQ) as the basics or the reference point. Majority of these works centred on the buyer’s side on the assumptions that the Seller will always provide the quantities required by the buyer.
However further research work which used (EOQ) as the reference point focus on the seller’s performance in a vendor/buyer market situation.
This work apart from being in the same direction with recent research work on this subject matter has in addition treated inventory model with planned shortage costs. This is because the (EOQ) formula is inadequate for calculations involving shortages in production order.
We developed a new formula for calculating optimal order quantity with shortages. An expected true profit for the Vendor and Buyer were established. The cash discount to be given so as to increase the Buyer’s order quantity was developed.