Optimising the credit term decisions in a dual-channel supply chain

We study the problem of credit term optimisation in a dual-channel supply chain setting, where a manufacturer serves as the leader in a Stackelberg game to determine the credit term and wholesale price for its retailer, in conjunction with the pricing decision for its direct sales channel. The retailer optimises its retail price given the credit term and wholesale price prescribed by the manufacturer. Decentralised optimal solutions are obtained to optimise the manufacturer's credit term decision while anticipating the retailer's autonomous price optimisation decision. Then a centralised decision paradigm is analysed to show the increase of total profitability through cooperation. In order to incentivise both parties to cooperate, we propose a new credit term-based contract for coordinating the dual-channel supply chain and devise a profit-sharing scheme for the manufacturer and retailer to achieve a win-win. Numerical studies are performed to obtain additional managerial insights.