An optimization approach for supply chain management models with quantity discount policy

An optimization approach for supply chain management models with quantity discount policy

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Article ID: iaor20084420
Country: Netherlands
Volume: 177
Issue: 2
Start Page Number: 982
End Page Number: 994
Publication Date: Mar 2007
Journal: European Journal of Operational Research
Authors:
Keywords: optimization
Abstract:

Owing to the difficulty of treating nonlinear functions, many supply chain management (SCM) models assume that the average prices of materials, production, transportation, and inventory are constant. This assumption, however, is not practical. Vendors usually offer quantity discounts to encourage the buyers to order more, and the producer intends to discount the unit production cost if the amount of production is large. This study solves a nonlinear SCM model capable of treating various quantity discount functions simultaneously, including linear, single breakpoint, step, and multiple breakpoint functions. By utilizing the presented linearization techniques, such a nonlinear model is approximated to a linear mixed 0–1 program solvable to obtain a global optimum.

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