The buyer’s procuring mechanism under operating cost sharing in supply chain

This paper considers a buyer’s procuring strategy where the buyer purchases products from a supplier in order to minimize his total cost. Assume that the customer arrivals follow a Poisson process, a base-stock policy is implemented by the buyer, and the supplier will afford partial operating cost incurred by the buyer; The cost shared by the buyer includes procuring cost and some operating cost; The supplier does not hold the inventory and her production time is exponentially distributed. The objective of the supplier is to maximize her profit. The buyer designs a contract to minimize his total expected cost. Two different cases are considered: One potential supplier and many competing suppliers. The optimal control approaches are used to design the buyer’s optimal mechanism and some simple procurement mechanisms are presented.