Third-Party Retailer’s Lot-Sizing Policy Under Conditions of Trade Credit, Uncertain Demand and Asymmetric Initial Budget Information

Abstract

Large retail platform has begun to provide trade credit to the capital-constrained and start-up third party retailer (3PR). Most of the 3PRs face uncertain demands with few historical data, which makes it difficult for retail platform to evaluate the rationality of 3PR’s lot-sizing decision and to design trade credit contracts. In addition, and 3PR’s initial budget is unknown to the retail platform, which further increases the risk of trade credit. There- fore, this paper considers a two-echelon supply chain consisting of a retail- platform and a 3PR, and investigates the 3PR’s lot-sizing decision and the design of trade credit contract based on uncertain demand and asymmetric initial budget information. We find that a) empirical uncertainty distribution is an effective tool for modeling uncertain demand with few historical data. b) The 3PR will place an irrational purchasing order regardless of the market condition when the retail platform does not interfere with 3PR’s decision mak- ing. 3) The 3PR will overstate its initial budget to get more loan when the retail platform interferes with 3PR’s decision making.