Dominant retailer's optimal policy in a supply chain under Advance Payment scheme and trade credit

Abstract

In a supply chain, a large and powerful retailer has the power of influencing another member’s decisions. In real life situations, the retailer provides price discount under Advance Payment (AP) scheme in order to attract customers in today’s business such as bricks, tiles, books etc. Due to the advancement of the internet and online money transactions, the AP scheme is common and useful to estimate the demand well in advance and to increase the market sales. In this paper, we consider a two-echelon supply chain with single supplier and multiple retailers. Among all the retailers, we intend to find optimal policy at the dominant retailer who offers AP scheme and trade credit in order to attract more customers. An Economic Order Quantity (EOQ) model with perfect items is developed to investigate the dominant retailer’s inventory system as a cost minimisation problem. A lot of managerial phenomena are obtained through numerical examples.