Pricing and replenishment strategy for a perishable product under various payment schemes and cap-and-trade regulation

Abstract

This study investigates a sustainable three-echelon supply chain structure (supplier–retailer–customer) from the retailer’s perspective for a perishable product where: (1) the retailer pays the purchase cost to the supplier in the form of an advance-cash-credit (ACC) payment while granting their customers a partial credit, (2) the supplier offers a price discount to the retailer to facilitate sales, (3) the deterioration rate of items increases over time due to an expiration date, (4) the customer is allowed a partial delay in orders with a fixed market tolerance period, and (5) the supply chain management (SCM) structure takes consideration of government cap-and-trade regulation. This paper intends to establish the retailer’s optimum cycle time, selling price, and inventory period simultaneously to maximize his/her total profit. An efficient algorithm has been constructed to find optimal solutions. Two examples have been presented to validate the proposed model. Furthermore, a comparative analysis of the four different payment methods (upstream ACC, advance, cash, credit, and downstream partial credit payments) has been carried out and sensitivity analyses have been performed to gain managerial insights. Our numerical results reveal that with the increase in the discount rate, the selling price reduces significantly, however, the retailer’s profit increases tremendously. The reason for this phenomenon is that a higher discount rate can lead to a higher profit for the retailer, hence, the retailer may set a lower price to increase sales. Many retailers desire a high discount rate, which is associated with the upstream advance and downstream partial credit payment; however, the computational results show that this payment method causes significant damage to the environment. Hence, two payment methods (upstream ACC, credit, and downstream partial credit payments) are recommended. The reason is that these two payment types bring more profits to the retailer and result in less damage to the environment.