Dual channel supply chain inventory policies for controllable deteriorating items having dynamic demand under trade credit policy with default risk

Abstract

Presently in the commercial environment, because of the high level of market globalization and rapid increase in industrialization, supply chain synchronization is playing an increasingly significant role in the proper management of the whole system including several factors at the same time. In real business world, both manufacturer and retailer accept credit to make their business position strong, as credit not only strengthens their business relationships but also increases the scale of their profits. The long period of credit may increase the demand ratebut simultaneously it can also increase the credit risk. We investigate a two-layer supply chain model under dynamic demand with a manufacturer and a retailer maintaining decaying items with controllable deterioration rates under two levels of trade credit policies. For the time of trade credit granted to the retailer, the manufacturer bears opportunity costs. To promote sales and optimize sales volume, both supply chain participants give trade credit periods to downstream members and due to the credit period, both of them are facing default risk. Both members work together to invest in preservation technologies to abate the rate of degradation. The proposed models are developed for both the centralized and the decentralized scenarios. A closed form model having profit maximization problem is developed for both the centralized and the decentralized scenarios. The focus of this study is to obtain the optimal selling price, replenishment cycle time, preservation technology cost, upstream and downstream trade credit period to optimize supply chain profit. The paper’s novelty lies in introducing two level trade credit with default risk considering decaying items with controllable deterioration and price and credit sensitive customer’s demand in a dual channel supply chain inventory policy. It is found that joint supply chain model can be able to enhance the total profit of the whole supply chain. Lastly, sensitivity analysis highlights the influence of major model parameters using numerical examples.