Optimal operational decisions when a manufacturer offers trade credit to his retailer

Abstract

In this paper, we develop models to determine operational and financial decisions of a supply chain under the condition that the retailer faces a financial constraint and the manufacturer can offer trade credit to assist the retailer. We first study the case where the retailer is risk-neutral, and derive the optimal ordering and financial decisions. Then, the case where the retailer is risk-averse (downside risk) is studied and the effects of the risk on the retailer and manufacturer’s operational and financial decisions are discussed. Finally, numerical examples are provided to conduct managerial analysis.

Keywords

Financial constraint / trade credit / downside risk / supply chain operations

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