Coordinating orders in a two echelon supply chain with controllable lead time and ordering cost using the credit period

In this research, a coordination mechanism based on a credit period in a two echelon supply chain with one buyer and one supplier, is designed. The buyer is faced with uncertain demand by coping with normal distribution. Both lead time and ordering cost for receiving his order can be reduced at an added cost; in other words, they are controllable. The optimization models with and without integration are proposed. Then a way to coordinate orders in supply chain based on the credit period so that the total cost of supply chain would be minimized is designed. By using this mechanism we also discuss how the credit period is to be determined in order to achieve channel coordination and a win-win outcome. Finally, numerical examples are solved to illustrate the theoretical results and obtain the managerial insights.

[1]  N. E. Abboud,et al.  Continuous review inventory model with delay in payments , 2003 .

[2]  James P. Monahan.  A Quantity Discount Pricing Model to Increase Vendor Profits , 1984 .

[3]  Wen-Chuan Lee,et al.  Computational algorithmic procedure for optimal inventory policy involving ordering cost reduction and back-order discounts when lead time demand is controllable , 2007, Appl. Math. Comput..

[4]  Fei Ye,et al.  Cost allocation model for optimizing supply chain inventory with controllable lead time , 2010, Comput. Ind. Eng..

[5]  Jui-Jung Liao,et al.  An Inventory Model for Deteriorating Items with Two Levels of Trade Credit Taking Account of Time Discounting , 2010 .

[6]  Arshinder,et al.  Supply chain coordination: Perspectives, empirical studies and research directions , 2008 .

[7]  Yung-Fu Huang,et al.  AN EOQ MODEL UNDER RETAILER PARTIAL TRADE CREDIT POLICY IN SUPPLY CHAIN , 2008 .

[8]  Liang-Yuh Ouyang,et al.  Production , Manufacturing and Logistics Optimal pricing , shipment and payment policy for an integrated supplier – buyer inventory model with two-part trade credit , 2007 .

[9]  Yu-Jen Lin,et al.  Minimax distribution free procedure with backorder price discount , 2008 .

[10]  Liang-Yuh Ouyang,et al.  Integrated vendor-buyer cooperative inventory models with controllable lead time and ordering cost reduction , 2006, Eur. J. Oper. Res..

[11]  Jun-Sik Kim,et al.  An optimal credit policy to increase supplier's profits with price dependent demand functions , 1994 .

[12]  Jason Chao-Hsien Pan,et al.  A study of an integrated inventory with controllable lead time , 2002 .

[13]  Yu-Cheng Hsiao,et al.  Integrated inventory models with controllable lead time and backorder discount considerations , 2005 .

[14]  Hark Hwang,et al.  Joint price and lot size determination under conditions of permissible delay in payments and quantity discounts for freight cost , 1996 .

[15]  M. Paknejad,et al.  Setup cost reduction in an inventory model with finite-range stochastic lead times , 1990 .

[16]  L. Ouyang,et al.  An integrated vendor–buyer inventory model with quality improvement and lead time reduction , 2007 .

[17]  Abdul Raouf,et al.  Inventory Models Involving Lead Time as a Decision Variable , 1994 .

[18]  L. Ouyang,et al.  The optimal pricing and ordering policy for an integrated inventory model when trade credit linked to order quantity , 2009 .

[19]  Liang-Yuh Ouyang,et al.  Lot size reorder point inventory model with controllable lead time and set-up cost , 2002, Int. J. Syst. Sci..

[20]  Kripa Shanker,et al.  Two-echelon supply chain inventory model with controllable lead time and service level constraint , 2009, Comput. Ind. Eng..

[21]  B. Sarker,et al.  Optimal payment time for a retailer under permitted delay of payment by the wholesaler , 2000 .

[22]  Jafar Heydari,et al.  Supply chain coordination for the joint determination of order quantity and reorder point using credit option , 2010, Eur. J. Oper. Res..

[23]  Qinan Wang,et al.  Coordination mechanisms of supply chain systems , 2007, Eur. J. Oper. Res..

[24]  Graham K. Rand,et al.  Decision Systems for Inventory Management and Production Planning , 1979 .

[25]  Z. K. Weng,et al.  Channel coordination and quantity discounts , 1995 .

[26]  Jui‐Jung Liao.  An EOQ model with noninstantaneous receipt and exponentially deteriorating items under two-level trade credit , 2008 .

[27]  S. Viswanathan,et al.  Discount pricing decisions in distribution channels with price-sensitive demand , 2003, Eur. J. Oper. Res..

[28]  R. J. Tersine.  Principles of inventory and materials management , 1982 .

[29]  Brian G. Kingsman,et al.  The Effect of Payment Rules on Ordering and Stockholding in Purchasing , 1983 .

[30]  Mohamad Y. Jaber,et al.  Lot sizing with permissible delay in payments and entropy cost , 2007, Comput. Ind. Eng..

[31]  Howard E. Thompson,et al.  INVENTORY MANAGEMENT AND CAPITAL BUDGETING: A PEDAGOGICAL NOTE , 1975 .

[32]  Sarada Prasad Sarmah,et al.  Coordination of a single-manufacturer/multi-buyer supply chain with credit option , 2008 .

[33]  Powell E. Robinson,et al.  Flow Coordination and Information Sharing in Supply Chains: Review, Implications, and Directions for Future Research , 2002, Decis. Sci..

[34]  Arthur F. Veinott,et al.  Analysis of Inventory Systems , 1963 .

[35]  Ilkyeong Moon,et al.  A note on lead time and distributional assumptions in continuous review inventory models , 1998, Comput. Oper. Res..

[36]  S. K. Goyal,et al.  Retailer's optimal replenishment decisions with credit-linked demand under permissible delay in payments , 2008, Eur. J. Oper. Res..

[37]  L. Ouyang,et al.  Mixture Inventory Model with Backorders and Lost Sales for Variable Lead Time , 1996 .

[38]  M. J. Rosenblatt,et al.  THEORIES AND REALITIES OF QUANTITY DISCOUNTS: AN EXPLORATORY STUDY * , 2009 .

[39]  Sarada Prasad Sarmah,et al.  Coordination and profit sharing between a manufacturer and a buyer with target profit under credit option , 2007, Eur. J. Oper. Res..

[40]  Liang-Hsuan Chen,et al.  Integrated vendor-buyer cooperative inventory models with variant permissible delay in payments , 2007, Eur. J. Oper. Res..

[41]  M. Parlar,et al.  Lead-time reduction in a two-level supply chain : non-cooperative equilibria vs. coordination with a profit-sharing contract , 2009 .

[42]  S. Goyal,et al.  Integrated inventory models: The buyer-vendor coordination , 1989 .

[43]  Evan L. Porteus.  Investing in Reduced Setups in the EOQ Model , 1985 .

[44]  M. Paknejad,et al.  Defective units in a continuous review (s, Q) system , 1995 .

[45]  C. Liao,et al.  An Analytical Determination of Lead Time with Normal Demand , 1991 .

[46]  Liwen Liu,et al.  Supply chain coordination with quantity discount policy , 2006 .

[47]  N. Gaither,et al.  Optimal Ordering Policies Under Conditions of Extended Payment Privileges , 1985 .

[48]  Shu-Lu Hsu,et al.  An integrated inventory model for a single vendor and multiple buyers with ordering cost reduction , 2001 .

[49]  Mohamed Ben-Daya,et al.  Lead-time reduction in a stochastic inventory system with learning consideration , 2003 .

[50]  S. Viswanathan,et al.  Coordinating supply chain inventories through common replenishment epochs , 2001, Eur. J. Oper. Res..

[51]  R. Uthayakumar,et al.  Reducing lost-sales rate in (T, R, L) inventory model with controllable lead time , 2010 .

[52]  I. Osman,et al.  Coordinating a three-level supply chain with price discounts, price dependent demand, and profit sharing , 2006 .

[53]  Liang-Yuh Ouyang,et al.  Lead time and ordering cost reductions in continuous review inventory systems with partial backorders , 1999, J. Oper. Res. Soc..

[54]  Amy Z. Zeng,et al.  Coordination through Revenue Sharing and Bargaining in a Two-stage Supply Chain , 2007, 2007 IEEE International Conference on Service Operations and Logistics, and Informatics.

[55]  Yu-Jen Lin,et al.  An integrated vendor-buyer inventory model with backorder price discount and effective investment to reduce ordering cost , 2009, Comput. Ind. Eng..

[56]  Z. Kevin Weng,et al.  Modeling quantity discounts under general price-sensitive demand functions: Optimal policies and relationships , 1995 .

[57]  Gilles Pesant,et al.  Distributed search for supply chain coordination , 2009, Comput. Ind..

[58]  M. J. Rosenblatt,et al.  A generalized quantity discount pricing model to increase supplier's profits , 1986 .

[59]  Mohamed Ben-Daya,et al.  Some stochastic inventory models with deterministic variable lead time , 1999, Eur. J. Oper. Res..

[60]  J. C. Hayya,et al.  Setup Reduction in the Economic Production Quantity Model , 1992 .

[61]  Mohamad Y. Jaber,et al.  Periodic review (s, S) inventory model with permissible delay in payments , 2004, J. Oper. Res. Soc..

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

[63]  Jui-Jung Liao,et al.  The optimal ordering policy of the EOQ model under trade credit depending on the ordering quantity from the DCF approach , 2009, Eur. J. Oper. Res..

[64]  Deng-Maw Tsai,et al.  An integrated vendor-buyer inventory model with order-processing cost reduction and permissible delay in payments , 2010, Eur. J. Oper. Res..

[65]  F. Arcelus,et al.  Delay of Payments for Extraordinary Purchases , 1993 .