Optimal replenishment time and lot-splitting delivery policy for nondeteriorating and deteriorating items with advance–loan–deposit scheme

Previous studies of retailer payments within the supply chain have usually focused on three approaches: (1) cash in advance, (2) cash on delivery, and (3) permissible payment delay. However, small- and medium-sized enterprises often must use bank loans when ordering goods in quantity due to insufficient cash availability. This paper develops two mathematical models, nondeteriorating and deteriorating items, for a two-echelon supply chain system in which the buyer adopts an advance–loan–deposit scheme to pay suppliers for goods. When the deterioration rate approaches 0, the deteriorating items model reduces to the nondeteriorating one. Two algorithms were developed to explore the optimal replenishment time and lot-splitting delivery policy. Numerical examples illustrate the proposed model and algorithm. A sensitivity analysis reveals the effects of four important parameters—i.e., ordering cost, unit-purchasing cost, receiving cost, and demand rate—on the optimal strategy. Managerial insights are also explored.