Modeling the effect of order timing reduction on coordinating supply chain inventories using a selective discount strategy

Abstract

Prior studies show that coordinating supply chain inventories with common replenishment epochs (CRE) provides benefit for vendor and buyers. Coordination using selective discount (SD) strategy allows some buyers to participate in the coordination scheme while other buyers continue to order as earlier. This can reduce the vendor's total cost more than that of all buyers participating and no buyer coordination in many circumstances. This paper considers the situation in which SD buyers place orders before CRE due to demand timing uncertainty. According to vendor flexibility, each SD buyer with early ordering incurs various levels of penalty cost to compensate for possible capacity loss for the vendor. The proposed models also allow for a more practical situation by considering the cases of equal and unequal probabilities of early ordering for SD buyers. The results indicate that the vendor's cost savings can be improved substantially based on the vendor flexibility, probability of early ordering, and the number of SD buyers involved in early ordering. © 2010 The Operations Research Society of Japan.