Optimum coverage of uncertainties in a supply chain with an order size constraint

Supply chain (SC) uncertainties are present in both the demand and supply sides of the chain. If these uncertainties are not countered appropriately, the customer service level (CSL) and customer satisfaction will decrease, and this, in turn, will lead to a loss of sales volume and SC profitability. Maintaining an appropriate level of safety stock as a counteracting solution to SC uncertainties can boost the CSL. In traditional decision making, the retailer determines the CSL by determining its own safety stock level. However, the CSL affects the sales volume and profitability of the upstream members. This paper investigates the joint decision making on CSL in a two-stage SC with a constraint on the retailer's order size to analyze the benefits of coordination and cooperation when determining the CSL. The results of this study show that CSL coordination can significantly increase the profitability of the SC.

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