Supply chain coordination with stock-dependent demand rate and credit incentives

- We coordinate manufacturer's and retailer's decisions with stock-dependent demand.
- The optimal credit period and quantity discount policies are developed.
- The credit period policy outperforms when the retailer's interest rate is higher.
- The quantity discount policy outperforms when the manufacturer's rate is higher.
- The centralized supply chain always outperforms the other policies.

In this paper, we consider a supply chain which consists of a single manufacturer and a single retailer with a single product type. Demand is assumed to be dependent on the retailer's stock level. Without coordination, the retailer determines its order quantity to maximize its own profit, which is usually smaller than the manufacturer's economic production quantity. Three coordination policies are presented to coordinate the manufacturer's and the retailer's decisions. First, the credit period policy and the quantity discount policy are developed and the total profits under the two policies are compared. Then we develop a centralized supply chain policy and show that there is a unique optimal order quantity to achieve a perfect coordination. The centralized supply chain can get higher or equal channel profit while the credit period policy and the quantity discount policy are easier to achieve. Numerical examples are provided to illustrate the proposed policies.