Coordination of Pricing, Ordering, and Lead time Decisions in a Manufacturing Supply Chain

Jafar Heydari · Yousef Norouzinasab

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Supply Chain and Inventory Management Quality and Supply Management Sustainable Supply Chain Management

Abstract

In this paper, an incentive policy is proposed to coordinate ordering, lead time, and pricing strategies in a two-echelon manufacturing supply chain (SC) consisting of one manufacturer and one retailer. The system is faced with a stochastic demand which depends on both price and lead time. The manufacturer decides on production size and manufacturing acceleration rate while the retailer determines the retail price and order size. A game-theory approach is proposed to analyze both members’ decision making process. An integrated decision making process where both members cooperate as a single entity aiming to maximize system-wide profit is formulated. Finally a coordination mechanism based on adjusting wholesale price is proposed to convince both members to decide jointly. Numerical experiments demonstrate that whole SC profitability as well as both members profitability is increased by applying the proposed scheme. Results indicate that coordinated decision making decreases both retail price and lead time length while it causes an increase in order size.

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References

1998Note. The Role of Returns Policies in Pricing and Inventory Decisions for Catalogue Goods 2013Overview of coordination contracts within forward and reverse supply chains 2005Supply chain coordination with quantity discount policy 2008Coordinating supply chains with sales rebate contracts and vendor-managed inventory 2007An integrated vendor–buyer inventory model with quality improvement and lead time reduction 2002Coordinating pricing and inventory replenishment policies for one wholesaler and one or more geographically dispersed retailers 2014Quality improvement and backorder price discount under controllable lead time in an inventory model 2005Coordinating inventory control and pricing strategies: The continuous review model

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