Abstract：Based on the characteristics of pre-payment trade credit, a supply chain preorder decentralized decision model is established by incorporating factors such as the deposit, discount and credit risk into the Newsvendor. We derive the optimal order quantity for the downstream, and the optimal delivered quantity and the credit decision for the upstream. Moreover, we systematically propose the concept of a preorder contract, and examine its efficacy in both fulfillment and default scenarios. The result finds that preorder contract can stimulate the order quantity. Specifically, the order quantity can be improved by lowering the deposit or increasing the discount. In comparison with fulfilment scenario, the order quantity in default scenario is larger, and the difference becomes more significant as market risk increases. If the downstream pays a small deposit or shows a large default probability, the upstream will reduce the order quantity, leading to lot-size inconsistency in the supply chain. Whether in the fulfillment or default scenario, preorder contract can perfectly coordinate the supply chain.
