Delay-in-payments - A strategy to reduce carbon emissions from supply chains

Abstract The purpose of this paper is to study the effects of various scenarios of delay-in-payments (a form of trade credit) by a buyer after receiving items, while including various costs such as fuel cost, the costs of carbon emissions from manufacturing and transportation activities, order cost, and setup cost in a two-echelon coordinated supply chain. The model developed optimizes the environmental and economic performance of a supply chain. The study presents a comparison of different scenarios through numerical examples and sensitivity analyses. The main contribution of this paper is the joint consideration of delays-in-payments, and the costs of transportation cost, and carbon emissions. The model has been tested with numerical examples, and sensitivity analyses. The findings showed that adopting delays-in-payments improves both environmental and economic performance of a supply chain. The analyses also showed that optimizing one of the parameters from the production rate, the length of delay-in-payments or the lot size provides the optimal solution for carbon emissions and the system cost of a supply chain. This flexibility makes the model easy to use by practitioners.