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Seller’s optimal credit period and replenishment time in a supply chain with up-stream and down-stream trade credits

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Abstract

In practice, a supplier often offers its retailers a permissible delay period M to settle their unpaid accounts. Likewise, a retailer in turn offers another trade credit period N to its customers. The benefits of trade credit are not only to attract new buyers who consider it a type of price reduction, but also to provide a competitive strategy other than introduce permanent price reductions. On the other hand, the policy of granting credit terms adds an additional cost to the seller as well as an additional dimension of default risk. In this paper, we first incorporate the fact that trade credit has a positive impact on demand but negative impacts on costs and default risks to establish an economic order quantity model for the seller in a supply chain with up-stream and down-stream trade credits. Then we derive the necessary and sufficient conditions to obtain the optimal replenishment time and credit period for the seller. Finally, we use some numerical examples to illustrate the theoretical results.

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Authors and Affiliations

  1. Department of Marketing and Management Sciences, The William Paterson University of New Jersey, Wayne, NJ, 07470-2103, USA

    Jinn-Tsair Teng

  2. Department of Management Sciences and Decision Making, Tamkang University, Tamsui, Taipei, 251, Taiwan, ROC

    Kuo-Ren Lou

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  1. Jinn-Tsair Teng
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  2. Kuo-Ren Lou
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Correspondence to Jinn-Tsair Teng.

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Teng, JT., Lou, KR. Seller’s optimal credit period and replenishment time in a supply chain with up-stream and down-stream trade credits. J Glob Optim 53, 417–430 (2012). https://doi.org/10.1007/s10898-011-9720-3

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  • DOI: https://doi.org/10.1007/s10898-011-9720-3

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