A model for buyer and supplier coordination and information sharing in order-up-to systems

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October 2012, 8(4): 987-1015. doi: 10.3934/jimo.2012.8.987

A model for buyer and supplier coordination and information sharing in order-up-to systems

Jong Soo Kim ^1, and Won Chan Jeong ^2,

1.	Department of Industrial and Management Engineering, Hanyang University, Erica Campus, Ansan, South Korea
2.	Department of Industrial and Management Engineering, Graduate School, Hanyang University, Seoul, South Korea

Received January 2011 Revised May 2012 Published September 2012

Abstract
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This study analyzed a logistics system consisting of a supplier that produces and delivers a single product and a buyer that receives and sells the product to retail customers. In this type of logistics system, the supplier and the buyer agree upon a contract specifying that the supplier will deliver the amount of product needed to increase the inventory of the buyer up to a predetermined order-up-to level at the beginning of each time period. A mathematical model was developed to construct methods to find the cost minimizing cycle lengths for both parties and the order-up-to level for the buyer. The proposed methods were tested for accuracy and execution speed in a variety of experimental settings. Analysis of the results revealed that the proposed methods determined the optimal control parameters for each party in a short time frame. Ultimately, a coordination mechanism based on a system-wide cost minimization policy was proposed to ensure that system-wide costs are minimized while, at the same time, both parties benefit from coordinating their efforts.

Keywords: buyer-supplier model, stochastic demand, periodic policy., Inventory control.

Mathematics Subject Classification: Primary: 90B05; Secondary: 90B3.

Citation: Jong Soo Kim, Won Chan Jeong. A model for buyer and supplier coordination and information sharing in order-up-to systems. Journal of Industrial and Management Optimization, 2012, 8 (4) : 987-1015. doi: 10.3934/jimo.2012.8.987

References:

[1]	R. Akella and R. Anupindi, Diversification under supply uncertainty, Management Science, 39 (1993), 944-963. doi: 10.1287/mnsc.39.8.944.
[2]	A. Banerjee, A supplier's pricing model under a customer's economic purchasing policy, Omega, 14 (1986), 409-414. doi: 10.1016/0305-0483(86)90082-4.
[3]	M. Bendaya and M. Hariga, Integrated single vendor single buyer model with stochastic demand and variable lead time, International Journal of Production Economics, 92 (2004), 75-80. doi: 10.1016/j.ijpe.2003.09.012.
[4]	J. F. Crowther, Rationale for quantity discounts, Harvard Business Review, 42 (1964), 121-127.
[5]	A. Eynan and D. H. Kropp, Effective and simple EOQ-like solutions for stochastic demand periodic review systems, European Journal of Operational Research, 180 (2007), 1135-1143. doi: 10.1016/j.ejor.2006.05.015.
[6]	S. K. Goyal, Note-Comment on: A generalized quantity discount pricing model to increase supplier's profit, Management Science, 33 (1987), 1635-1636. doi: 10.1287/mnsc.33.12.1635.
[7]	S. K. Goyal, A one vendor multi buyer integrated inventory model: A comment, European Journal of Operational Research, 82 (1995), 209-210. doi: 10.1016/0377-2217(93)E0357-4.
[8]	H. Gurnani, A study of quantity discount pricing models with different ordering structures: Order coordination, order consolidation and multi-tier ordering hierarchy, International Journal of Production Economics, 72 (2001), 203-225. doi: 10.1016/S0925-5273(00)00159-6.
[9]	R. M. Hill, The single vendor, single buyer integrated production inventory model with a generalized policy, European Journal of Operational Research, 97 (1997), 493-499. doi: 10.1016/S0377-2217(96)00267-6.
[10]	T. D. Klastorin, K. Moinzadeh and J. Son, Coordinating orders in supply chains through price discounts, IIE Transactions, 34 (2002), 679-689. doi: 10.1080/07408170208928904.
[11]	M. Khouja, Optimizing inventory decisions in a multistage multi customer supply chain, Transportation Research Part E: Logistics and Transportation Review, 39 (2003), 193-208. doi: 10.1016/S1366-5545(02)00036-4.
[12]	B. W. Kim, J. M. Y. Leung, K. T. Park, G. Zhang and S. C. Lee, Configuring a manufacturing firm's supply network with multiple supplier, IIE transactions, 34 (2002), 663-677. doi: 10.1080/07408170208928903.
[13]	L. Lu, Theory and methodology: A one vendor multi buyer integrated inventory model, European Journal of Operational Research, 81 (1995), 312-323. doi: 10.1016/0377-2217(93)E0253-T.
[14]	A. K. Misra, Selective discount for supplier buyer coordination using common replenishment epochs, European Journal of Operational Research, 153 (2004), 751-756. doi: 10.1016/S0377-2217(02)00811-1.
[15]	J. P. Monahan, A quantity discount pricing model to increase vendor profits, Management Science, 30 (1984), 720-726. doi: 10.1287/mnsc.30.6.720.
[16]	C. L. Munson and M. J. Rosenblatt, Coordinating a three level supply chain with quantity discounts, IIE Transactions, 33 (2001), 371-384. doi: 10.1080/07408170108936836.
[17]	L. Y. Ouyang, K. S. Wu and C. H. Ho, Integrated vendoruyer cooperative models with stochastic demand in controllable lead time, International Journal of Production Economics, 92 (2004), 255-266. doi: 10.1016/j.ijpe.2003.10.016.
[18]	M. J. Rosenblatt and H. L. Lee, Improving profitability with quantity discounts under fixed demand, IIE Transactions, 17 (1985), 388-395. doi: 10.1080/07408178508975319.
[19]	S. M. Ross, "Stochastic Processes," 2^nd edition, John Wiley & Sons, New York, 1995.
[20]	S. P. Sarma, D. Acharya and S. K. Goyal, Buyer vendor coordination models in supply chain management, European Journal of Operational Research, 175 (2006), 1-15. doi: 10.1016/j.ejor.2005.08.006.
[21]	M. Sharafali and H. C. Co, Some models for understanding the cooperation between the supplier and the buyer, International Journal of Production Research, 38 (2000), 3425-3449. doi: 10.1080/002075400422734.
[22]	E. A. Silver, D.F. Pyke and R. Peterson, "Inventory Management and Production Planning and Scheduling," 3^nd edition, John Wiley & Sons, New York, 1998.
[23]	S. Viswanathan and R. Piplani, Coordinating supply chain inventories through common replenishment epoch, European Journal of Operational Research, 129 (2001), 277-286. doi: 10.1016/S0377-2217(00)00225-3.

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References:

[1]	R. Akella and R. Anupindi, Diversification under supply uncertainty, Management Science, 39 (1993), 944-963. doi: 10.1287/mnsc.39.8.944.
[2]	A. Banerjee, A supplier's pricing model under a customer's economic purchasing policy, Omega, 14 (1986), 409-414. doi: 10.1016/0305-0483(86)90082-4.
[3]	M. Bendaya and M. Hariga, Integrated single vendor single buyer model with stochastic demand and variable lead time, International Journal of Production Economics, 92 (2004), 75-80. doi: 10.1016/j.ijpe.2003.09.012.
[4]	J. F. Crowther, Rationale for quantity discounts, Harvard Business Review, 42 (1964), 121-127.
[5]	A. Eynan and D. H. Kropp, Effective and simple EOQ-like solutions for stochastic demand periodic review systems, European Journal of Operational Research, 180 (2007), 1135-1143. doi: 10.1016/j.ejor.2006.05.015.
[6]	S. K. Goyal, Note-Comment on: A generalized quantity discount pricing model to increase supplier's profit, Management Science, 33 (1987), 1635-1636. doi: 10.1287/mnsc.33.12.1635.
[7]	S. K. Goyal, A one vendor multi buyer integrated inventory model: A comment, European Journal of Operational Research, 82 (1995), 209-210. doi: 10.1016/0377-2217(93)E0357-4.
[8]	H. Gurnani, A study of quantity discount pricing models with different ordering structures: Order coordination, order consolidation and multi-tier ordering hierarchy, International Journal of Production Economics, 72 (2001), 203-225. doi: 10.1016/S0925-5273(00)00159-6.
[9]	R. M. Hill, The single vendor, single buyer integrated production inventory model with a generalized policy, European Journal of Operational Research, 97 (1997), 493-499. doi: 10.1016/S0377-2217(96)00267-6.
[10]	T. D. Klastorin, K. Moinzadeh and J. Son, Coordinating orders in supply chains through price discounts, IIE Transactions, 34 (2002), 679-689. doi: 10.1080/07408170208928904.
[11]	M. Khouja, Optimizing inventory decisions in a multistage multi customer supply chain, Transportation Research Part E: Logistics and Transportation Review, 39 (2003), 193-208. doi: 10.1016/S1366-5545(02)00036-4.
[12]	B. W. Kim, J. M. Y. Leung, K. T. Park, G. Zhang and S. C. Lee, Configuring a manufacturing firm's supply network with multiple supplier, IIE transactions, 34 (2002), 663-677. doi: 10.1080/07408170208928903.
[13]	L. Lu, Theory and methodology: A one vendor multi buyer integrated inventory model, European Journal of Operational Research, 81 (1995), 312-323. doi: 10.1016/0377-2217(93)E0253-T.
[14]	A. K. Misra, Selective discount for supplier buyer coordination using common replenishment epochs, European Journal of Operational Research, 153 (2004), 751-756. doi: 10.1016/S0377-2217(02)00811-1.
[15]	J. P. Monahan, A quantity discount pricing model to increase vendor profits, Management Science, 30 (1984), 720-726. doi: 10.1287/mnsc.30.6.720.
[16]	C. L. Munson and M. J. Rosenblatt, Coordinating a three level supply chain with quantity discounts, IIE Transactions, 33 (2001), 371-384. doi: 10.1080/07408170108936836.
[17]	L. Y. Ouyang, K. S. Wu and C. H. Ho, Integrated vendoruyer cooperative models with stochastic demand in controllable lead time, International Journal of Production Economics, 92 (2004), 255-266. doi: 10.1016/j.ijpe.2003.10.016.
[18]	M. J. Rosenblatt and H. L. Lee, Improving profitability with quantity discounts under fixed demand, IIE Transactions, 17 (1985), 388-395. doi: 10.1080/07408178508975319.
[19]	S. M. Ross, "Stochastic Processes," 2^nd edition, John Wiley & Sons, New York, 1995.
[20]	S. P. Sarma, D. Acharya and S. K. Goyal, Buyer vendor coordination models in supply chain management, European Journal of Operational Research, 175 (2006), 1-15. doi: 10.1016/j.ejor.2005.08.006.
[21]	M. Sharafali and H. C. Co, Some models for understanding the cooperation between the supplier and the buyer, International Journal of Production Research, 38 (2000), 3425-3449. doi: 10.1080/002075400422734.
[22]	E. A. Silver, D.F. Pyke and R. Peterson, "Inventory Management and Production Planning and Scheduling," 3^nd edition, John Wiley & Sons, New York, 1998.
[23]	S. Viswanathan and R. Piplani, Coordinating supply chain inventories through common replenishment epoch, European Journal of Operational Research, 129 (2001), 277-286. doi: 10.1016/S0377-2217(00)00225-3.

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