Optimal replenishment and credit policy in supply chain inventory model under two levels of trade credit with time- and credit-sensitive demand involving default risk

Traditional supply chain inventory modes with trade credit usually only assumed that the up-stream suppliers offered the down-stream retailers a fixed credit period. However, in practice the retailers will also provide a credit period to customers to promote the market competition. In this paper, we formulate an optimal supply chain inventory model under two levels of trade credit policy with default risk consideration. Here, the demand is assumed to be credit-sensitive and increasing function of time. The major objective is to determine the retailer’s optimal credit period and cycle time such that the total profit per unit time is maximized. The existence and uniqueness of the optimal solution to the presented model are examined, and an easy method is also shown to find the optimal inventory policies of the considered problem. Finally, numerical examples and sensitive analysis are presented to illustrate the developed model and to provide some managerial insights.