Strategic Provision of Trade Credit in a Dual-Channel Supply Chain

Abstract

This study focuses on a a dual-channel supply chain that consists of a capital-constrained brick-and-mortar retailer and a manufacturer, where a manufacturer can simultaneously sell products through a traditional retail channel and a direct online channel. Supplementary pricing strategy and competitive pricing strategy are simulated in our model, and we find that the former one is the better choice for the manufacturer when the retailer suffers capital constraints. In our analysis, the capital constraint on retailer could mitigate the price competition between two channels, and it may be beneficial to the manufacturer under certain conditions. Our findings show that the manufacturer should strategically provide trade credit to retailers rather than unconditionally provide it. We present two trade-credit strategies (trade credit with positive interest rate and trade credit with zero interest rate) and suggest that the manufacturer should choose an appropriate trade-credit strategy according to the initial capital of the retailer. To guide the manufacturer when and how to provide trade credit, we conduct several numerical simulations based on our results and further plot out a graph to direct the manufacturer to an appropriate strategy of trade credit.

A Game-Theoretic Credit Period and Promotion Model in a Supplier-Retailer Channel

“…Using a switching regression method and incorporating the simultaneous decisions taken by the financial banks to provide credit and decision of the firms to implement same they arrived at helpful managerial decisions. Wan et al [10] considered a dual channel in which a manufacturer can sell his products through retail supply channel and at the same time directly to consumers through an online product supply channel. They developed a model on competitive and supplementary product pricing strategies, and observed that instead of unconditional provision of trade credit, the manufacturer's provision of trade credit should be strategic.…”

A Three-Level Game-Theoretic Trade Credit Model in a Supply Channel

“…Considering optimal length of a cycle, preservation technology, product price and trade credit financing, Mashud et al [11] studied how trade credit and product preservation technology can influence the rate of deterioration of a product and flexible retail financing. In a study of a manufacturer-retailer conventional channel and a manufacturer-consumer online channel, a dual-channel system, Wan et al [12] formulated a model on pricing strategies, and inferred that credit should be strategically provided instead of unconditional provision. Mahata and Mahata [13] considered a dynamic situation involving the sale of deteriorating items with varying demand rate with respect to inventory level and length of credit period.…”