Designing a supply chain network under a dynamic discounting-based credit payment program

¹ Department of Industrial Management, National Taiwan University of Science and Technology, Taipei, Taiwan.
² Artificial Intelligence for Operations Management Research Center, National Taiwan University of Science and Technology, Taipei, Taiwan.
³ Department of Business Administration, Asia University, Taichung, Taiwan.
⁴ Department of Medical Research, China Medical University Hospital, China Medical University, Taichung, Taiwan.
⁵ Department of Mechanical and Industrial Engineering, Universitas Gadjah Mada, Yogyakarta, Indonesia.

^* Corresponding author: yctsao@mail.ntust.edu.tw

Received: 11 September 2020
Accepted: 21 July 2021

Abstract

This study examines the effects of dynamic discounting based credit payment on a supply chain network design problem. Dynamic discounting based credit payment is a supply chain finance policy wherein the supplier provides a credit period to a distribution center (DC) with a discount applied if the DC pays the supplier before the end of the credit period. This study also considers the time value of money and applies discounted cash flows to formulate a model that determines the DC’s optimal replenishment cycle, selling price, and influence area while maximizing the present value of the total profit. The continuous approximation approach is applied to formulate a mathematical model of the problems, and an algorithm based on non-linear optimization is established to solve the problem. A numerical example and a sensitivity analysis are provided to present the proposed model and solution approach and to illustrate the effect of each cost on the decisions and profit.