Co-ordination models of a single-vendor multi-buyer supply chain

Abstract

Supply chain management has become a critical issue in current business environments. Much research has emphasized the co-ordination that reduces the total system cost in a supply chain network. In the last three decades, various integrated inventory co-ordinated models have been established (Sarmah et al. (2006), Khouja and Goyal (2008)). Chan and Kingsman (2005, 2006, 2007) developed a synchronized cycles model that allows each buyer to choose its ordering cycle, where the length of the cycle is a submultiple of the vendor's production cycle. In order to further minimize the total cost, under the synchronized cycle the vendor may schedule the time of the delivery within an ordering cycle, and this delivery time may be different from buyer to buyer. It has been shown, by many numerical experiments, that the synchronized cycles model can significantly reduce the total system cost and make a significant reduction in the vendor's cost compared to the independent policy and the common replenishment cycle (e.g. Banerjee and Burton (1994)). However, the cost to all the buyers is significantly increased. This research analyses what mechanisms are needed from the vendor to motivate the buyers to change their policies so as to allow the saving from coordination to be achieved. The first mechanism proposed by the research is quantity discounts. Three models of quantity discounts are proposed. The second mechanism proposed by this research is a trade credit policy, in which the supplier will offer the retailer a delay period, that is, the trade credit period, in paying for the amount of purchasing cost. Such credit policies may be applied as an alternative to quantity discounts to motivate buyers to participate in the supply chain co-ordination. The final mechanism proposed by this research is a cost sharing policy in which a portion of the buyer's holding cost is borne by the vendor. While the vendor benefits from the co-ordination by synchronized cycles, the mechanisms proposed by this research can guarantee that a buyer's total relevant cost of coordination will not be increased when compared with independent optimization. Hence, both the vendor and the buyers are motivated to co-ordiante in the supply chain.