Abstract
This study examines the effects of dynamic discounting based credit payment on a supply chain network design problem. Dynamic discounting based credit payment is a supply chain finance policy wherein the supplier provides a credit period to a distribution center (DC) with a discount applied if the DC pays the supplier before the end of the credit period. This study also considers the time value of money and applies discounted cash flows to formulate a model that determines the DC’s optimal replenishment cycle, selling price, and influence area while maximizing the present value of the total profit. The continuous approximation approach is applied to formulate a mathematical model of the problems, and an algorithm based on non-linear optimization is established to solve the problem. A numerical example and a sensitivity analysis are provided to present the proposed model and solution approach and to illustrate the effect of each cost on the decisions and profit.
Highlights
Chain network design is critical in supply chain management that deals with three types of flows, namely, product, information, and financial flows
This study presented a supply chain network design that consists of a single supplier, multiple distribution center (DC), and multiple retailers
A mathematical model was built under three cases with three decision variables, namely, the DC’s replenishment cycle, selling price, and influence area so that the present value of the total profit is maximized
Summary
Chain network design is critical in supply chain management that deals with three types of flows, namely, product, information, and financial flows. Alavi and Jabbarzadeh [1] provided an optimization model that integrated financial flow (e.g., trade credit), the capital budget, and bank credit in supply chain configuration to determine the location and allocation of a distribution center. No studies considered dynamic discounting in supply chain network design problems. Dynamic discounting is used as the payment scheme in a supply chain network design problem. To the best of the author’s knowledge, this is the first study that examines the effects of a dynamic discounting scheme on a supply chain network problem In such a scheme, the supplier provides a credit period to the distribution center (DC) and a discount is applied if the DC pays the supplier before the end of the credit period.
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