A proposed ordering strategy for the retailer in a two tier, advanced payment supply chain

ABSTRACT

Facing demand uncertainty and supply uncertainty, the retailer needs to make the order decision before the selling period. Therefore, the retailer can pay in advance to reduce supply risk. In order to protect his capital, the retailer will also require his customers to pay for the goods in advance. Customers may receive a corresponding price discount as well. In this paper, a two tier, advance payment supply chain is modeled. Four scenarios are drawn and the optimal ordering strategy for each scenario is discussed. It was discovered that, in order for the retailer to optimize his inventory cost, increasing the unit sales price and shortening the order cycle simultaneously can help reduce the annual average cost. It was also found that, in order to reduce the retailer’s costs, they should negotiate payment terms with his supplier, particularly requesting for lower portions of advance payments.

KEYWORDS:

• Two tier supply chain
• advance payments
• capital risk
• inventory management

Acknowledgments

The authors greatly appreciate the editor and the anonymous referees for their insightful comments and suggestions that have significantly improved the paper. The research has been supported by the Scientific Research Foundation of Nanjing University of Posts and Telecommunications (NY220212), the 1311 Programs Foundation of Nanjing University of Posts and Telecommunications, the Postgraduate Research & Practice Innovation Program of Jiangsu Province (KYCX21_0841), and Key Research Base of Philosophy and Social Sciences in Jiangsu—Information Industry Integration Innovation and Emergency Management Research Center.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the Key Research Base of Philosophy and Social Sciences in Jiangsu—Information Industry Integration Innovation and Emergency Management Research Center; Scientific Research Foundation of Nanjing University of Posts and Telecommunications [NY220212]; the 1311 Programs Foundation of Nanjing University of Posts and Telecommunications; the Postgraduate Research & Practice Innovation Program of Jiangsu Province [KYCX21_0841].