A multiple replenishment contract with ARIMA demand processes

A multiple replenishment contract with ARIMA demand processes

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Article ID: iaor20042466
Country: United Kingdom
Volume: 54
Issue: 11
Start Page Number: 1189
End Page Number: 1197
Publication Date: Nov 2003
Journal: Journal of the Operational Research Society
Authors: , ,
Keywords: ARIMA processes
Abstract:

This paper is concerned with a multiple replenishment contract with a purchase price discount in a supply chain. The chain is composed of one supplier, one buyer and consumers for a product. The replenishment contract is based upon the well-known (s, Q) policy, but allows us to contract replenishments at a future time with a price discount. Owing to the larger forecast error of future demand, the buyer should keep a higher level of safety stock to provide the same level of service as the usual (s, Q) policy. However, the buyer can reduce his purchase cost by ordering a larger quantity at a discounted price. Hence, there exists a trade-off between the price discount and the inventory holding cost. For the ARIMA demand processes, we present a model for the contract and an algorithm to find the number of the future replenishments. Computational experiments show that the algorithm finds the global optimum solution very quickly.

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