Coordinated decision-making on manufacturer's EPQ-based and buyer's period review inventory policies with stochastic price-sensitive demand: A credit option approach

Pricing and replenishment decisions are no longer internal issues within organizations and it is of high significance to coordinate such primary decisions from a supply chain (SC) perspective. In this study, for the first time, we develop a new method based on credit option to coordinate production, pricing, and periodic review policy decisions considering a manufacturer-buyer chain under price-sensitive stochastic demand. In the studied SC, the buyer applies a periodic review order-up-to level inventory policy and its decision variables are order-up-to level, selling price and review period. In this case, the manufacturer follows an economic production quantity (EPQ) policy and decides on production multiplier. Firstly, exact algorithms in addition to concavity analysis are addressed to find optimal decisions in centralized and decentralized structures. Afterwards, a credit option mechanism is proposed to obtain mutually acceptable decisions and create a win–win situation for the manufacturer and buyer. Numerical examples and sensitivity analysis along with a real case study are carried out to show the applicability and performance of the credit option contract. The results reveal the capability of the proposed credit option contract in coordinating pricing, production, and periodic review replenishment decisions; thereby encouraging both sides to accept the coordination mechanism. Moreover, the results indicate that the proposed credit option contract can even improve the SC profit more than centralized model under some circumstances.

[1]  Liang-Yuh Ouyang,et al.  A periodic review inventory model involving variable lead time with a service level constraint , 2000, Int. J. Syst. Sci..

[2]  Mohamad Y. Jaber,et al.  Coordination of a three-level supply chain (supplier–manufacturer–retailer) with permissible delay in payments , 2016 .

[3]  Richard G. Netemeyer,et al.  Price Perceptions and Consumer Shopping Behavior: A Field Study , 1993 .

[4]  J. Heydari,et al.  Coordination of social responsibility and order quantity in a two-echelon supply chain: A collaborative decision-making perspective , 2017 .

[5]  A. Banerjee,et al.  Coordination of two-echelon supply chains using wholesale price discount and credit option , 2013 .

[6]  Ata Allah Taleizadeh,et al.  An inventory control problem for deteriorating items with back-ordering and financial considerations , 2014 .

[7]  D. Montgomery,et al.  INVENTORY MODELS WITH A MIXTURE OF BACKORDERS AND LOST SALES. , 1973 .

[8]  M. Nematollahi,et al.  Coordinating pricing and periodic review replenishment decisions in a two-echelon supply chain using quantity discount contract , 2016 .

[9]  J. Dawes,et al.  Consumer response to price changes in higher-priced brands , 2017 .

[10]  Jafar Heydari,et al.  Optimum coverage of uncertainties in a supply chain with an order size constraint , 2010 .

[11]  Seyyed-Mahdi Hosseini-Motlagh,et al.  Economic and social collaborative decision-making on visit interval and service level in a two-echelon pharmaceutical supply chain , 2017 .

[12]  Jinn-Tsair Teng,et al.  Economic production quantity models for deteriorating items with up-stream full trade credit and down-stream partial trade credit , 2014 .

[13]  Seyyed-Mahdi Hosseini-Motlagh,et al.  Supply Chain Coordination using Different Modes of Transportation Considering Stochastic Price-Dependent Demand and Periodic Review Replenishment Policy , 2017 .

[14]  Suresh P. Sethi,et al.  Coordination Mechanism for the Supply Chain with Leadtime Consideration and Price-Dependent Demand , 2009, Eur. J. Oper. Res..

[15]  Mohamad Y. Jaber,et al.  Coordinating a two-level supply chain with delay in payments and profit sharing , 2006, Comput. Ind. Eng..

[16]  Ferhan Çebi,et al.  A two-stage fuzzy approach for supplier evaluation and order allocation problem with quantity discounts and lead time , 2016, Inf. Sci..

[17]  S. Meysam Mousavi,et al.  A three level joint location-inventory problem with correlated demand, shortages and periodic review system: Robust meta-heuristics , 2017, Comput. Ind. Eng..

[18]  Seyyed-Mahdi Hosseini-Motlagh,et al.  Simultaneous coordination of review period and order-up-to-level in a manufacturer-retailer chain , 2017 .

[19]  Jafar Heydari,et al.  Coordinating replenishment decisions in a two-stage supply chain by considering truckload limitation based on delay in payments , 2015, Int. J. Syst. Sci..

[20]  Xiaowo Tang,et al.  Competition among supply chains: Implications of full returns policy , 2012 .

[21]  S. Goyal.  Economic Order Quantity under Conditions of Permissible Delay in Payments , 1985 .

[22]  Jafar Heydari,et al.  A two-level discount model for coordinating a decentralized supply chain considering stochastic price-sensitive demand , 2015 .

[23]  D. W. Pentico,et al.  An EOQ model with partial delayed payment and partial backordering , 2013 .

[24]  Mohammad Reza Akbari Jokar,et al.  Optimizing shipment, ordering and pricing policies in a two-stage supply chain with price-sensitive demand , 2009 .

[25]  Lei Yang,et al.  Comparisons of low carbon policies in supply chain coordination , 2014 .

[26]  H. Rafiei,et al.  A revenue-sharing option contract toward coordination of supply chains , 2016 .

[27]  B. Giri,et al.  Coordinating a two-echelon supply chain through different contracts under price and promotional effort-dependent demand , 2013 .

[28]  Jafar Heydari,et al.  Lead time variation control using reliable shipment equipment: An incentive scheme for supply chain coordination , 2014 .

[29]  Peng Zhang,et al.  Transshipment and coordination in a two-echelon supply chain , 2017, RAIRO Oper. Res..

[30]  Pandu R. Tadikamalla,et al.  Flexible contract design for VMI supply chain with service-sensitive demand: Revenue-sharing and supplier subsidy , 2017, Eur. J. Oper. Res..

[31]  Seyed Mohammad Seyedhosseini,et al.  Coordination and profit sharing in a two-level supply chain under periodic review inventory policy with delay in payments contract , 2017 .

[32]  Wansheng Tang,et al.  Coordinating a supply chain with negative effect of retailer's local promotion on goodwill and reference price , 2017, RAIRO Oper. Res..

[33]  Mohamad Y. Jaber,et al.  Coordinating a three-level supply chain with delay in payments and a discounted interest rate , 2014, Comput. Ind. Eng..

[34]  Prafulla Joglekar.  Note-Comments on A Quantity Discount Pricing Model to Increase Vendor Profits , 1988 .

[35]  M. J. Rosenblatt,et al.  Improving Profitability with Quantity Discounts under Fixed Demand , 1985 .

[36]  Seyyed-Mahdi Hosseini-Motlagh,et al.  Proposing a delay in payment contract for coordinating a two-echelon periodic review supply chain with stochastic promotional effort dependent demand , 2019, Int. J. Mach. Learn. Cybern..

[37]  G. Gallego,et al.  Coordinating pricing and inventory replenishment policies for one wholesaler and one or more geographically dispersed retailers , 2002 .

[38]  Jing Chen,et al.  Coordinating a decentralized supply chain with customer returns and price-dependent stochastic demand using a buyback policy , 2011, Eur. J. Oper. Res..

[39]  Jan Zabojnik,et al.  Centralized and Decentralized Decision Making in Organizations , 2000, Journal of Labor Economics.

[40]  Jafar Heydari,et al.  Simultaneous coordination of order quantity and reorder point in a two-stage supply chain , 2011, Comput. Oper. Res..

[41]  Jinxing Xie,et al.  Coordinating advertising and pricing in a manufacturer-retailer channel , 2009, Eur. J. Oper. Res..

[42]  Lei Yang,et al.  An analysis of supply chain decisions with asymmetrical retailers : effects of disruptions and static service cost on coordination mechanism , 2012, RAIRO Oper. Res..

[43]  Subrata Saha,et al.  Supply chain coordination through rebate induced contracts , 2013 .

[44]  Mohamad Y. Jaber,et al.  Coordination of a three-level supply chain (supplier–manufacturer–retailer) with permissible delay in payments and price discounts , 2017 .

[45]  Xiaobo Zhao,et al.  A delay-in-payment contract for Pareto improvement of a supply chain with stochastic demand , 2014 .

[46]  Seyyed-Mahdi Hosseini-Motlagh,et al.  Coordination of cooperative promotion efforts with competing retailers in a manufacturer-retailer supply chain , 2018 .