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Supply Chain Coordination Under Demand Uncertainty Using Credit Option

In: Supply Chain Coordination under Uncertainty

Author

Listed:
  • S. Kamal Chaharsooghi

    (Tarbiat Modares University)

  • Jafar Heydari

    (Shiraz University of Technology)

Abstract

In this chapter, a coordination scheme based on the credit option for the simultaneous coordination of order quantity (Q) and reorder point (s) in a two-stage supply chain (SC) is developed. A decentralized SC including one buyer and one supplier is investigated. The buyer faces demand uncertainty and uses a continuous (s, Q) inventory model. It is shown that joint decision making for both s and Q is profitable for the whole SC. However, in centralized decision making the buyer always loses, whereas the supplier greatly profits. A credit option is proposed as a coordination scheme to encourage the buyer to accept the coordinated decisions. In the proposed model, the buyer can benefit from late payments that are subject to commitment to the jointly agreed s and Q. The lower and upper bounds for the credit period are calculated. The proposed scheme shares the benefits of coordinated decision making based on the bargaining power of each member. Numerical experiments showed that the proposed model can achieve channel coordination.

Suggested Citation

  • S. Kamal Chaharsooghi & Jafar Heydari, 2011. "Supply Chain Coordination Under Demand Uncertainty Using Credit Option," International Handbooks on Information Systems, in: Tsan-Ming Choi & T.C. Edwin Cheng (ed.), Supply Chain Coordination under Uncertainty, pages 403-425, Springer.
    • Handle: RePEc:spr:ihichp:978-3-642-19257-9_16
    DOI: 10.1007/978-3-642-19257-9_16
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