A single‐vendor single‐buyer supply chain under conditions of permissible delay in payments

The permissible delay in payments policy is one of the widely used approaches to motivate cooperation among supply chain players. Traditionally, inventory models that have been developed under the permissible delay in payments policy deal with single‐layer production systems. However, this policy is not addressed in the context of a wider supply chain. The objective of this paper is to develop a model for a single‐vendor single‐buyer supply chain under conditions of permissible delay in payments. It is expected that the permissible delay in payments policy impacts important supply chain decisions, particularly vendors' production lot size and the number of shipments delivered from the vendor to the buyer. Evidently, these decisions are directly related to the total cost of the supply chain and, perhaps most importantly, would lead to providing better products at a reduced cost for customers. A generalised shipment policy is selected in this paper. This policy represents equal‐sized shipments and geometric policies. In addition, a procedure is developed to solve the proposed model. Also, numerical examples are presented to compare the proposed model to the traditional ones.