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: | Chen Liang-Hsuan, Kang Fu-Sen |
Keywords: | supply & supply chains |
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.