Non-Cooperative Game Theoretic Approach in Supply Chain With Imperfect Quality Items and Credit Financing

Abstract

This paper considers a supply chain model for imperfect quality items in which retail price of the buyer influences the demand of the product. The seller offers fix credit period for the buyer to stimulate his sales. Each delivered lot, goes through an inspection process at the buyer's end. After the inspection, items are separated into two parts, one is perfect quality items and another is imperfect quality items. The perfect quality items are sold at selling price and the imperfect items are sold at a discounted price immediately after the inspection process. The credit period offered by the seller and the selling price of the seller, both are considered as a decision variable. Relationship between seller and buyer is derived from the non-cooperative Seller- Stackelberg game approach. Optimal selling price, credit period and order quantity are determined by maximizing expected total profit of the supply chain. At the end, numerical examples with sensitivity analysis are given to explain the theory of the paper.