Strategic decisions in an imperfect quality and inspection scenario under two-stage credit financing with order overlapping approach

Abstract

To sustain fierce competition prevailing in the market, customer satisfaction is one metric that any firm can profoundly rely on to measure its performance. In the proposed model, a tri-tier supply chain (manufacturer - wholesaler - retailer) is studied where the consignment received is unreliable due to imperfect items. With the focus on customer satisfaction, the consignment is first screened for defects where screening, realistically, is error prone. With the intent of not losing customers due to shortages, the demand during current screening period is fulfilled from the perfect items of the previous order cycle. In addition, for financial safety, the wholesaler who receives a full trade credit by the manufacturer in turn offers partial a trade credit to his/her subsequent retailer. Therefore, a valid assumption in such type of scenario is that the demand is credit period dependent. Considering all the above-mentioned factors, an optimal replenishment policy has been investigated which serves as a ready reckoner for the operations manager. An extensive numerical and sensitivity analysis has been performed to demonstrate the validity of the proposed framework and provide useful managerial insights.