Optimal credit period and ordering policy with credit-dependent demand under two-level trade credit

Abstract

This paper investigates the retailer's trade credit strategy and ordering policy in a two-echelon supply chain consisting of one supplier and one retailer. The retailer accepts upstream trade credit from the supplier while offers downstream trade credit to consumers, and the relationship between the upstream and downstream credit period is uncertain. The market demand depends on both the downstream trade credit and the random initial demand rate, and granting downstream trade credit increases not only sales but also default risk. This paper tries to find the retailer's optimal decisions on credit period, replenishment cycle, and order quantity so as to maximize the retailer's profit. It is shown that there exists a unique decision for the retailer. Some numerical examples are given to verify our results and provide more managerial insights. It is found that the retailer is more willing to provide trade credit under higher marginal profit, and that providing downstream trade credit is beneficial to both the retailer and supplier.