Integration of three echelon supply chain (supplier-manufacturer-distributor-drop shipper) with permissible delay in payment and penalty contract

Supply Chain Management (SCM) has to be considered in the company in order to improve the sustainability and competitiveness. SCM executed to integrating any companies on the supply chain in a way of coordinating the flow of goods, information, and financial. Permissible delay in payment is one of the coordination ways with allowing the costumers delay the payments to a vendor in some certain periods without any interest charges. In the supply chain system, drop-shipping player already familiar in this era. In drop-shipping internet retailing, the supplier will hold supplies and also carry out physical distribution service on behalf of drop-shipper. Drop-shipper will just focus on selling, on the other hand, their supplier will be responsible for the physical process. Generally, drop-shipper have information of the customer demands better than the distributor. But, it is also unrare when the drop-shipper send the estimation of demands which bigger than their own estimation in order to maximize their own interest, so they hope supplies of the distributor will always enough to accommodate their demands. Contributions in this research will be focused on integration of three echelons supply chain, which are the supplier, manufacturer, distributor, and drop-shipper. With considering delay in payment on first and second echelons, and also the contract penalty on third echelon. The problem on this research will be modeled in some kind of cases which can represent the problem of real supply chain system. Sensitivity analysis will be done on certain significant variables toward the changes of total supply chain cost. Coordination with delay in payment success to integrate supply chain. Contract penalty plan success to maintain the profit of distributor and drop-shipper.