Coordinating orders in a two echelon supply chain with controllable lead time and ordering cost using the credit period

In this research, a coordination mechanism based on a credit period in a two echelon supply chain with one buyer and one supplier, is designed. The buyer is faced with uncertain demand by coping with normal distribution. Both lead time and ordering cost for receiving his order can be reduced at an added cost; in other words, they are controllable. The optimization models with and without integration are proposed. Then a way to coordinate orders in supply chain based on the credit period so that the total cost of supply chain would be minimized is designed. By using this mechanism we also discuss how the credit period is to be determined in order to achieve channel coordination and a win–win outcome. Finally, numerical examples are solved to illustrate the theoretical results and obtain the managerial insights.

► A two echelon supply chain with one buyer and one supplier is analyzed. ► Both lead time and ordering cost of buyer are controllable. ► A coordination mechanism based on a credit period such that minimized the total cost of supply chain is designed. ► Also an implementation method to share extra savings between the two parties in order to achieve a win–win outcome is designed. ► Coordination and joint decision can improve the performance of the entire supply chain.