Abstract
ABSTRACT Facing demand uncertainty and supply uncertainty, the retailer needs to make the order decision before the selling period. Therefore, the retailer can pay in advance to reduce supply risk. In order to protect his capital, the retailer will also require his customers to pay for the goods in advance. Customers may receive a corresponding price discount as well. In this paper, a two tier, advance payment supply chain is modeled. Four scenarios are drawn and the optimal ordering strategy for each scenario is discussed. It was discovered that, in order for the retailer to optimize his inventory cost, increasing the unit sales price and shortening the order cycle simultaneously can help reduce the annual average cost. It was also found that, in order to reduce the retailer’s costs, they should negotiate payment terms with his supplier, particularly requesting for lower portions of advance payments.
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