A credit period contract towards coordination of pharmaceutical supply chain:The case of inventory-level-dependent demand

This paper considers a two stages pharmaceutical supply chain (PSC) consisting of a pharmaceutical manufacturer (pharma-manufacturer) that supplies one type of pharmaceutical product to a pharma-retailer. The customer demand rate for the pharmaceutical product is dependent on the pharma-retailer’s current-inventory level. The pharma-retailer determines the order quantity ( ) value as decision variable and the pharma-manufacturer uses EPQ system that usually the economic order quantity value of retailer is less than the optimal production quantity value of manufacturer. First, the problem is investigated in decentralized decision-making and accordingly, a coordination incentive based on credit payment period policy to coordinate the mentioned PSC in two structures is proposed: independent optimization and centralized model with credit policy. Moreover, numerical examples and sensitivity analysis are considered to illustrate the results of the presented coordination structures toward decentralized model.