Managing Supplier's Product Adulteration With Trade Credit In Supply Chain

With the development of globalization and international extension of supply chain,competition among enterprises become fiercer than it used to be.In addition,technical development and demand variance brings great pressure in cutting off product life cycle,shortening lead time,reducing product cost while maintaining product quality.As consequence,product adulteration problem arise more and more frequently and out of control.As we can see reports on quality problem every day,most of them result from product adulteration and result in huge losses in economy and lives.As a tool to control product adulteration,trade credit has been used broadly in managerial activities and attracted most interests in academic researches.Trade credit is a kind of commercial credit arouse from trade of products and services among companies,including delay payment method and pre-payment method.Using trade credit helps company with relieved capacity constrain,transferring product quality information,greater competence in non-pricing competition and adjusting supply chain.In another way,trade credit is also used as a main source of short-term financing.Trade credit is not only widely used in managerial practices in that way,but also arouse great interest in operation management area.For now,there has been many papers studying using trade credit to control product adulteration.In this paper,a brief introduction about supply chain risk is followed by reviews in quality control theory in supply chain.After that,reviews in trade credit followed.In the modeling chapter,a study on supplier's product adulteration behavior relied on the use of trade credit contract in supply chain.A mathematical model is built under Starckelberg game between a supplier and a buyer.Deferred payment contact can be used by buyer to prevent supplier's adulteration behavior.An optimal deferred payment contract is given under buyer 's optimal profit problem.By solving the optimal problem and finding the optimal contract,the conclusion is showed as follow:(1)the motivation of supplier's adulteration behavior is increasing with a relevantly lower adulteration cost,an optimal deferred payment contract can be used to prevent supplier's adulteration behavior;(2)an optimal deferred payment contract is also useful in preventing supplier's adulteration behavior when the adulteration cost is low relevantly;(3)when the adulteration cost is high relevantly,supplier's product adulteration would prevent buyer and whole supply chain from a higher profit;(4)the smaller the gap of financing cost between buyer and supplier is,the bigger chance that buyer may have to achieve optimal profit,and more motivated to use deferred payment contract.