July  2005, 1(3): 275-287. doi: 10.3934/jimo.2005.1.275

Supply contract model with service level constraint

1. 

Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100080, China

2. 

Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, 100190, China

3. 

Department of Intelligence and Informatics, Konan University, 8-9-1 Okamoto, Kobe 658-8501

Received  August 2004 Revised  March 2005 Published  July 2005

This paper addresses a new topic of supply chain management: service level constraint for a supply contract model in a buyer's perspective. The concept of order fill rate is introduced in the supply contract model as a measurement of customer service level. The buyer's optimal ordering decisions in both stages are derived by using the dynamic programming approach. The impact of the service level on the making of optimal decisions is analyzed. The main results include that: (1) the optimal ordering quantity with service level constraint is larger than or equal to that without constraint; (2) the optimal service level setting of the buyer is determined by the system parameters. The results presented in this paper provide insights for managers looking to find a tradeoff between profit maximization and customer service level.
Citation: Jun Wu, Shouyang Wang, Wuyi Yue. Supply contract model with service level constraint. Journal of Industrial & Management Optimization, 2005, 1 (3) : 275-287. doi: 10.3934/jimo.2005.1.275
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