Optimal Pricing Strategy in a Two-Echelon Supply Chain with Admissible Advanced and Delayed Payments
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In the traditional economic order quantity model, the purchasing cost of an order is paid at the time of its receipt. However, in reality, installment payment of purchasing cost is very common and many distributors pay the purchasing cost to the manufacturers in installments (upstream partial prepayment). In a similar manner, distributors allow retailers to pay the purchasing cost after the goods are received (downstream partial delay payment). This 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 under admissible advanced and delayed payment options. The market demand at the retailer is assumed to be linearly dependent on the selling price. The effect of advanced/delayed payment on the optimal payment time is analyzed. The optimal results of the developed model and sensitivity analysis are presented for a numerical example. It is revealed that the supply chain’s average profit attains the maximum when the optimal cycle time is longer than the optimal payment time.
KeywordsSupply chain Lot-for-lot policy Price-dependent demand Advanced/delayed payment
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