Optimal payment time in a two-echelon supply chain with price-dependent demand under trade credit financing

Abstract

ABSTRACTThis article develops a two-echelon supply chain model with a single-manufacturer and a single-retailer in which the manufacturer adopts a lot-for-lot policy for meeting the demand of the retailer. The market demand at the retailer is assumed to be linearly dependent on the selling price. The manufacturer offers a trade credit to the retailer with an agreement that the retailer must allocate him a fraction of the profit earned during the credit period. The retailer's payment time can be before or after the termination of trade credit period and even beyond the cycle time. Depending on the instance of payment with respect to the credit period and the cycle length, six different cases are considered. The net profit per unit time of the whole supply chain in each case is derived. For a numerical example, the optimal decisions are obtained and the impact of key model-parameters on the outcome of the model is examined. It is observed from the numerical study that the whole system is profitable when the retailer pays at a time exceeding the credit period but before the end of the cycle time. Further, a win–win situation can be achieved through the profit sharing contract between the manufacturer and the retailer.