Impact of Providing Trade Credit on Suppliers’ Operational Performance

Abstract

This paper considers a two-echelon supply chain consisting of one supplier and one retailer. The supplier sells a product to the retailer, who faces a deterministic demand, and may offer the retailer two types of trade credit contracts: a “one-part” or a “two-part” contract. We mainly focus on how the two trade credit contracts influence the supplier's operational performance, and try to explain from the operational perspective why the supplier in practice is willing to offer these trade credits in most situations. We specify the conditions under which it is beneficial in improving performance for the supplier to offer the one-part trade credit, and reveal through numerical experiments that it is more superior in improving performance for the supplier to offer a two-part credit than to offer a one-part credit. Also, we will show how the supplier should set the two trade credit policies to make them more efficient. The sensitivity analysis is presented at the end of the paper.