Coordination and profit sharing in a two-level supply chain under periodic review inventory policy with delay in payments contract

Authors

1 School of Industrial Engineering, Iran University of Science and Technology

2 School of Industrial Engineering, Iran University of Science and Technology, Tehran, Iran

3 School of Industrial Engineering, Iran University of Science & Technology, Tehran, Iran

4 School of Industrial Engineering, Iran University of Science & Technology,

Abstract

In this paper,a coordination model has been investigated for a two-level supply chain (SC) consisting of one retailer and one supplier under periodic review inventory system. The review period and the retailer’s safety factorare assumed to be decision variables. The retailer faces stochastic demand following a normal distribution with known mean and variance. Moreover, it is assumed that unmet demand will be backordered. Firstly, the investigated SC is modeled under the decentralized and centralized decision-making structures, afterwards, a coordination mechanism based on delay in payments is proposed for transition from the decentralized to centralized model. To fairly share the surplus profit obtained by coordination, a profit sharing strategy is developed which is based on the bargaining power of the two SC members. Finally, a set of numerical experiments and sensitivity analysis are carried out. Numerical examples indicate that the proposed delay in payments contract can achieve channel coordination and the whole SC cost will decrease under the coordination model while the costs of neither retailer nor the supplier will increase. 

Keywords

Main Subjects


Axsäter, S., 1993. Optimization of order‐up‐to‐s policies in two‐echelon inventory systems with periodic review. Naval Research Logistics (NRL), 40(2), pp.245-253.
Annadurai, K. and Uthayakumar, R., 2010. Reducing lost-sales rate in (T, R, L) inventory model with controllable lead time. Applied Mathematical Modelling, 34(11), pp.3465-3477.
Cachon, G.P. and Lariviere, M.A., 2005. Supply chain coordination with revenue-sharing contracts: strengths and limitations. Management science, 51(1), pp.30-44.
 
Chaharsooghi, S.K. and Heydari, J., 2009. Supply chain coordination for the joint determination of order quantity and reorder point using credit option. European Journal of Operational Research, 204(1), pp.86-95.
Chaharsooghi, S.K., Heydari, J. and Kamalabadi, I.N., 2011. Simultaneous coordination of order quantity and reorder point in a two-stage supply chain. Computers & Operations Research, 38(12), pp.1667-1677.
Chung, W., Talluri, S. and Narasimhan, R., 2014. Quantity flexibility contract in the presence of discount incentive. Decision Sciences, 45(1), pp.49-79.
Ding, D. and Chen, J., 2008. Coordinating a three level supply chain with flexible return policies. Omega, 36(5), pp.865-876.
 
Duan, Y., Huo, J., Zhang, Y. and Zhang, J., 2012. Two level supply chain coordination with delay in payments for fixed lifetime products. Computers & Industrial Engineering, 63(2), pp.456-463.
Gao, D., Zhao, X. and Geng, W., 2014. A delay-in-payment contract for Pareto improvement of a supply chain with stochastic demand. Omega, 49, pp.60-68.
Giannoccaro, I. and Pontrandolfo, P., 2004. Supply chain coordination by revenue sharing contracts. International journal of production economics, 89(2), pp.131-139.
Heydari, J. and Norouzinasab, Y., 2016. Coordination of pricing, ordering, and lead time decisions in a manufacturing supply chain. Journal of Industrial and Systems Engineering, 9, pp.1-16.
Heydari, J., 2014. Lead time variation control using reliable shipment equipment: An incentive scheme for supply chain coordination. Transportation Research Part E: Logistics and Transportation Review, 63, pp.44-58.
Heydari, J., 2014. Coordinating replenishment decisions in a two-stage supply chain by considering truckload limitation based on delay in payments. International Journal of Systems Science, 46(10), pp.1897-1908.
Heydari, J., 2014. Supply chain coordination using time-based temporary price discounts. Computers & Industrial Engineering, 75, pp.96-101.
Heydari, J., Choi, T.M. and Radkhah, S., 2016. Pareto improving supply chain coordination under a money-back guarantee service program. Service Sci.
Heydari, J. and Asl-Najafi, J., 2016. Coordinating inventory decisions in a two-echelon supply chain through the target sales rebate contract. International Journal of Inventory Research, 3(1), pp.49-69.
 
Hsu, S.L. and Lee, C.C., 2009. Replenishment and lead time decisions in manufacturer–retailer chains. Transportation Research Part E: Logistics and Transportation Review, 45(3), pp.398-408.
Jaber, M.Y. and Osman, I.H., 2006. Coordinating a two-level supply chain with s and profit sharing. Computers & Industrial Engineering, 50(4), pp.385-400.
Johari, M., Hosseini-Motlagh, S.M., Nematollahi, M.R., 2016. Simultaneous coordination of review period and safety stock in a manufacturer-retailer chain. Journal of Industrial and Systems Engineering, in press.
Kanchanasuntorn, K. and Techanitisawad, A., 2006. An approximate periodic model for fixed-life perishable products in a two-echelon inventory–distribution system. International Journal of Production Economics, 100(1), pp.101-115.
Kanda, A. and Deshmukh, S.G., 2009. A framework for evaluation of coordination by contracts: A case of two-level supply chains. Computers & Industrial Engineering, 56(4), pp.1177-1191.
Lin, Y.J., 2010. A stochastic periodic review integrated inventory model involving defective items, backorder price discount, and variable lead time. 4OR, 8(3), pp.281-297.
Li, J. and Liu, L., 2006. Supply chain coordination with quantity discount policy. International Journal of Production Economics, 101(1), pp.89-98.
Linh, C.T. and Hong, Y., 2009. Channel coordination through a revenue sharing contract in a two-period newsboy problem. European Journal of Operational Research, 198(3), pp.822-829.
Mallidis, I., Vlachos, D., Iakovou, E. and Dekker, R., 2014. Design and planning for green global supply chains under periodic review replenishment policies. Transportation Research Part E: Logistics and Transportation Review, 72, pp.210-235.
Mokhlesian, M. and Zeghrdi, S.H., 2015. Coordination of pricing and cooperative advertising for perishable products in a two-echelon supply chain: A bi-level programming approach. Journal of Industrial and Systems Engineering, 8(4), pp.38-58.
Munson, C.L. and Rosenblatt, M.J., 2001. Coordinating a three-level supply chain with quantity discounts. IIE transactions, 33(5), pp.371-384.
 
Nematollahi, M., Hosseini-Motlagh, S.M. and Heydari, J., 2016. Economic and social collaborative decision-making on visit interval and service level in a two-echelon pharmaceutical supply chain. Journal of Cleaner Production.
Nematollahi, M., Hosseini-Motlagh, S.M. and Heydari, J., 2016. Coordination of social responsibility and order quantity in a two-echelon supply chain: A collaborative decision-making perspective. International Journal of Production Economics.
Ouyang, L.Y. and Chuang, B.R., 2000. A periodic review inventory model involving variable lead time with a service level constraint. International Journal of Systems Science, 31(10), pp.1209-1215.
Ouyang, L.Y., Chuang, B.R. and Lin, Y.J., 2007. Effective investment to reduce lost-sales rate in a periodic review inventory model. OR Spectrum, 29(4), pp.681-697.
Silver, E.A. and Bischak, D.P., 2011. The exact fill rate in a periodic review base stock system under normally distributed demand. Omega, 39(3), pp.346-349.
Sinha, D. and Matta, K.F., 1991. Multi-echelon (R, S) inventory model. Decision Sciences, 22(3), pp.484-499.
Tsay, A.A., 1999. The quantity flexibility contract and supplier-customer incentives. Management science, 45(10), pp.1339-1358.
Taylor, T.A., 2002. Supply chain coordination under channel rebates with sales effort effects. Management science, 48(8), pp.992-1007.
 
Wu, C. and Zhao, Q., 2014. Supplier–buyer deterministic inventory coordination with trade credit and shelf-life constraint. International Journal of Systems Science: Operations & Logistics, 1(1), pp.36-46.
Xiong, H., Chen, B. and Xie, J., 2011. A composite contract based on buy back and quantity flexibility contracts. European Journal of Operational Research, 210(3), pp.559-567.