An optimal lot sizing and pricing in two echelon supply chain

Abstract: This paper studies inventory and pricing policies in a non-cooperative supply chain with one supplier and several retailers who are involved in producing, delivering and selling a single product. We consider inventory policies in an information-asymmetric vendor managed inventory. The study consists of different scenarios where a supplier produces the product at the wholesale price to multiple retailers. The retailers also distribute the product in dispersed and independent markets at retail selling prices. The demand rate for each market is a non-decreasing concave function of the marketing expenditures of both local retailers and the manufacturer, but a non-increasing and convex function of the retail selling prices. The primary purpose is to determine wholesale price, marketing expenditure for supplier and retailers, replenishment cycles for the product, and backorder quantity to maximize the total profit for both groups of supplier and retailers. All scenarios are modeled as a Stackelberg game where the manufacturer is the leader and the retailers are the followers. A numerical study has been presented to demonstrate the influences of decision variables and/or parameters in various scenarios. Finally, sensitivity analysis is performed to study the impact of different parameters on total profitability.

How to cite this paper

 Naeij, J & Shavandi, H. (2010). An optimal lot sizing and pricing in two echelon supply chain.International Journal of Industrial Engineering Computations , 1(1), 11-32.

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