SUPPLY CHAIN MODEL FOR IMPERFECT QUALITY ITEMS WITH TRADE CREDIT FINANCING: A GAME THEORETICAL APPROACH

Abstract

The concepts of advanced technology and equipment are adopted widely in the industry to determine the production of high quality items, regardless, it is observed that a few items produced are of imperfect quality. These defective items might be the result of common operations or static maintenance. Thereby, to sort the imperfect quality items, an inspection process is performed with each lot of items delivered from the seller to the buyer, which are then sold at a discount. Generally, shortages appear due to defective items, which can be restrained by scaling an order when the inventory level meets the demand concurrent to screening process. Further, it is generally assumed that the buyer would process payments on an immediate basis to the seller after receiving the consignment of the gross items purchased. While in practice, the seller does offer a certain fixed duration for the buyer to trigger his supply. The interest is only levied to the buyer by the seller beyond the fixed period as per agreed terms and conditions. With the outline, a supply chain model has been developed with imperfect quality items with allowable late payments wherein end demand of the product depends upon the retail price. Optimal polices of the seller and buyer are obtained under co-operative and non-cooperative analogue, which will enhance the supply chain profit. Co-operative relationship is established by a Pareto efficient solution method, and non-cooperative is obtained by Seller-Stackelberg approach. Finally, numerical illustrations with sensibility analysis are stated to exemplify the theory of the paper.