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Optimal trade credit and replenishment policies for supply chain network design

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  • Zhong, Yuanguang
  • Shu, Jia
  • Xie, Wei
  • Zhou, Yong-Wu

Abstract

Classical supply chain models usually overlook the impact of financial factors on the overall supply chain performance. In practice, however, it has been demonstrated that financial flow, as one of the three major flows, significantly affects the operational decisions. When it is difficult to obtain funds from the financial institutes, trade credit is frequently adopted as an important financial tool that affects the firm’s ordering behavior. In this paper, with the consideration of trade credit, we propose an integrated supply chain network design model that simultaneously determines the location of warehouses, the assignments of retailers to warehouses, the policy of warehouse-retailer inventory management, and the deferred payment time allowed by the warehouses for each retailer to minimize the system-wise location, transportation, multi-echelon inventory, and financing costs. The impacts of trade credit on warehouse locations and warehouse-retailer assignments are examined analytically and numerically. Through numerical studies, we show that the optimal network will be more consolidated with higher financing costs and significant cost reduction can be achieved by considering financial decisions at the strategic supply chain design stage.

Suggested Citation

  • Zhong, Yuanguang & Shu, Jia & Xie, Wei & Zhou, Yong-Wu, 2018. "Optimal trade credit and replenishment policies for supply chain network design," Omega, Elsevier, vol. 81(C), pages 26-37.
  • Handle: RePEc:eee:jomega:v:81:y:2018:i:c:p:26-37
    DOI: 10.1016/j.omega.2017.09.006
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    3. Falguni Mahato & Chandan Mahato & Gour Chandra Mahata, 2023. "Sustainable optimal production policies for an imperfect production system with trade credit under different carbon emission regulations," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(9), pages 10073-10099, September.
    4. Xie, Xiaofeng & Chen, Xiangfeng & Xu, Xun & Gu, Jing, 2024. "Financing a dual capital-constrained supply chain: Profit enhancement and diffusion effect of default risk," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 181(C).
    5. Tao, Yi & Wu, Jianhuang & Lai, Xiaofan & Wang, Fan, 2020. "Network planning and operation of sustainable closed-loop supply chains in emerging markets: Retail market configurations and carbon policies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 144(C).
    6. Xie, Xiaofeng & Shi, Xinyu & Gu, Jing & Xu, Xun, 2023. "Examining the Contagion Effect of Credit Risk in a Supply Chain under Trade Credit and Bank Loan Offering," Omega, Elsevier, vol. 115(C).
    7. Mei-Chuan Cheng & Hui-Chiung Lo & Chih-Te Yang, 2023. "Optimizing Pricing, Pre-Sale Incentive, and Inventory Decisions with Advance Sales and Trade Credit under Carbon Tax Policy," Mathematics, MDPI, vol. 11(11), pages 1-18, May.
    8. Yu-Chung Tsao & Aisyah Dewi Muthi’ah & Thuy-Linh Vu & Niniet Indah Arvitrida, 2021. "Supply chain network design under advance-cash-credit payment," Annals of Operations Research, Springer, vol. 305(1), pages 251-272, October.
    9. Peng, Juan & Zhou, Zhili, 2019. "Working capital optimization in a supply chain perspective," European Journal of Operational Research, Elsevier, vol. 277(3), pages 846-856.
    10. Jahani, Hamed & Abbasi, Babak & Sheu, Jiuh-Biing & Klibi, Walid, 2024. "Supply chain network design with financial considerations: A comprehensive review," European Journal of Operational Research, Elsevier, vol. 312(3), pages 799-839.
    11. Rahaman, Mohammad M. & Zhang, Michael & Feng, Jiejian, 2022. "Two-sided market power and firm performance," Journal of Business Research, Elsevier, vol. 150(C), pages 585-605.
    12. Mohammad Reza Mozaffari & Sahar Ostovan & Peter Fernandes Wanke, 2020. "A Hybrid Genetic Algorithm-Ratio DEA Approach for Assessing Sustainable Efficiency in Two-Echelon Supply Chains," Sustainability, MDPI, vol. 12(19), pages 1-17, September.
    13. Xie, Wei & Yu, Huilin & Zhong, Yuanguang & Zhou, Yong-Wu, 2024. "Impact of loss aversion on financing mechanism preference under consignment: Direct vs. Guarantee," European Journal of Operational Research, Elsevier, vol. 314(1), pages 206-228.
    14. Óskarsdóttir, María & Bravo, Cristián, 2021. "Multilayer network analysis for improved credit risk prediction," Omega, Elsevier, vol. 105(C).

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