Coordination of a three-level supply chain (supplier–manufacturer–retailer) with permissible delay in payments and price discounts

Abstract

Different coordination mechanisms are used to manage supply chains. This paper investigates a coordination of a three-level supply chain (supplier–manufacturer–retailer) by coupling two well-known trade credit mechanisms that are widely used in practice, permissible delay in payments and price discounts, where the length of the delay period and discounts offered along the supply chain are decision variables. The paper investigates nine different cases of delay in payments along with eight cases of price discounts among the three players in the supply chain. A numerical example was presented to compare between the cases considered. Also, extensive sensitivity analyses were performed to study the effect of changing the model parameters on the optimal decisions. In addition, we point out the limitations of each model developed in this paper. The numerical examples and the sensitivity analyses conclude that the coupling of delay in payments and price discounts increases the profit of the supply chain more than using only a single mechanism at a time.