Operational economies of a process positioning determinant

The authors develop and analyze a model of commercial relationship. The commercial chain is assumed to have predefined boundaries consisting of a manufacturer, a retailer and consumers. The authors show how cooperation in the chain can be induced so as to maximize total system gain. The present analysis helps resolve issues such as optimal price mark up as the product passes through various stages in the chain, optimal level of investment in modernizing manufacturing technology and equipment for faster production rate, production and delivery lot sizing, optimal acquisition cost of backward and forward integration, and optimal investment in set up cost reduction.