A supply chain model under credit period and price dependent demand: a Stackelberg approach

In many industrial practices, market demand is likely to be affected by the trade credit policy. In this regard, present study aims to develop a retailer–supplier non-cooperative replenishment model with price and credit length-dependent demand and default risk, to determine the best credit period in a supplier-Stackelberg game. The perks of credit policy include attracting new buyers and avoiding long-term price rivalry. This study was conducted under three distinct decision-making scenarios. The first section demonstrates the optimal outcomes for decentralized and centralized decisions when trade credit is unavailable. Secondly, the Stackelberg game framework employs a leader-follower relationship, where the manufacturer plays the role of leader and the retailer plays the role of follower. Using a supplier Stackelberg method, the existence and uniqueness requirements for the retailer and the supplier optimal solutions have been constructed. In this supplier Stackelberg strategy, the retailer sets the best lot-size, while the supplier chooses the best credit length. A series of theorems and corollaries were designed to determine the best response under these conditions. Sensitivity analysis of few examples have been carried out to demonstrate the proposed method and the anticipated outcomes. Also, the decision variable’s characteristics, obtained from the sensitivity analysis, have been figured out. According to the sensitivity analysis, the characteristic of the decision variable is provided, and the efficacy of the centralized decision-making approach is shown. Additionally, this research shows a high correlation between demand, credit length, and profit in the supply chain.