A Supply Chain Network Design Under Advance-Cash-Credit Payment Scheme

The increase of e-commerce activities affects many aspects of supply chain decisions, including payment term alternatives. There are many variations of payment terms used in e-commerce practices. The vendor may offer the retailer a combination of several payment terms. It may consist of an advance-cash-credit (ACC) payment scheme, which means that the buyer needs to pay a fraction of the purchasing cost before he receives the item (advance payment). The other payment alternatives are enabling the buyer whether to pay some cash when the item is arrived (cash on delivery), and/or to pay the remaining purchasing cost after a credit period (credit payment). This paper investigates the effect of payment schemes on the supply chain network design. The network consists of an outside supplier, multiple DC's, and multiple retailers. The distribution centers receive an upstream ACC payment from the supplier. The problem is to determine the optimum location, allocation, as well as the inventory cycle time with the objective function of minimize total cost. A continuous approximation is used in the model development, and the concept of time value of money concept is considered. The numerical example is used to demonstrate the solution approach. This paper provides modeling approach that supply chain network designer can use as a reference.