Research On Supply Chain Coordination With Trade Credit

In real commercial activities supply chain members are always primarily concerned with optimizing their own benefit when they make decisions for they are independent of each other. Usually the objective to optimize the benefit of supply chain system as a whole is different from the objectives of separate members, sometimes even conflict with them. When each member tries to optimize their own benefit the performance of the whole supply chain will inevitably be hurt. Supply chain coordination is to make the objective of each member aligned with the goal of the whole supply chain system, i.e. when each member achieve the objective of benefit optimization the whole system can also realize its optimal performance. The supply chain coordination contract is the important mean to encourage the members to take actions according to the goal of the whole system optimization.Trade credit is the credit offered in the exchange of goods or services. If a time lapse between the delivery of goods or service and the receipt of payment the credit is offered. Trade credit allows the buyers to delay the payment or allow the seller delay the delivery of goods or service. It is an incentive to both parties. So if trade credit contract is well designed it can induce the two sides'action aligned with the whole supply chain's optimization objective.First, in the second chapter based on the theoretical and empirical research findings in finance, strategic management and marketing the paper finds evidence to use trade credit as incentive in coordination contract. Then the third chapter reviews the literature on supply chain coordination with contracts from which the general research method is synthesized. The fourth chapter builds a model based on trade credit contract. Optimal actions in this model are identified. The performance of supply chain with trade credit contract in decentralized control system is compared with that under price-only contract and also with that in central control system. The method of adjusting parameters to divide the supply chain's profit among the firms is also found. Finally, the research findings are validated by simulation.The dissertation proved trade credit contract can coordinate the supply chain. The contract also has flexibility allowing for limited division of the supply chain's profit among the firms by adjusting parameters. Suggestion is given in contract parameters setting and the method to identify the reasonable scale of the parameters which provide some reference to contract setting practice.