Coordination between vendor and buyer considering trade credit and items of imperfect quality

Vendor-buyer models for trade credit issues in the existing literature always consider the items produced as perfect. However, a number of items in a lot may be of imperfect quality. This paper extends Chen and Kang's [2007. Integrated vendor-buyer cooperative models with variant permissible delay in payments. European Journal of Operational Research 183 (2), 658-673] study to develop integrated vendor-buyer models that consider a permissible delay in payment and imperfect quality to determine the optimal solutions of the buyer's order quantity and the frequency for each vendor's production run. To establish a cooperative relationship between the vendor and buyer for a win-win situation, a simple solution algorithm is presented to determine the cost saving of each side when the warranty cost per unit is increased. A numerical example is used to illustrate the results for the proposed models.