Integrated inventory models considering the two-level trade credit policy and a price-negotiation scheme

Integrated inventory models considering the two-level trade credit policy and a price-negotiation scheme

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Article ID: iaor20101867
Volume: 205
Issue: 1
Start Page Number: 47
End Page Number: 58
Publication Date: Aug 2010
Journal: European Journal of Operational Research
Authors: ,
Keywords: supply & supply chains
Abstract:

This paper develops the integrated inventory models with permissible delay in payment, in which customers' demand is sensitive to the buyer's price. The models consider the two-level trade credit policy in the vendor–buyer and buyer–customer relationships in supply chain management. A simple recursive solution procedure is proposed for the integrated models to determine the buyer's optimal pricing and production/order strategy. Although the total profit from the buyer and vendor increases together, the buyer's share lessens. To compensate the buyer's loss due to the cooperative relationship, a negotiation system is presented in order to allocate the profit increase to the vendor and buyer to determine the pricing and production/order strategy. A numerical example and sensitivity analysis are provided to illustrate the proposed model. The results indicate that the total profit from the buyer and vendor together can increase, although a price discount is given to the buyer in the proposed models.

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