Hybrid lot‐size coordination in a single‐manufacturer‐multiple‐retailer system

The growth of Business‐to‐Business (B2B) e‐commerce may bring about supply chain volatility and increase the dynamics of the supply chain system. In a sell‐side B2B market, a number of retailers are rigidly linked to the sole supplier. A win‐win supply chain partnership needs to be implemented, taking into account the system as a whole instead of a specific partner only. This study deals with group purchasing and the profit‐sharing problem in the sell‐side market environment. A sole manufacturer has a dominant bargaining power, such that all the retailers' order quantity is unilaterally determined by the manufacturer's production policy. A group of retailers propose compensatory payment to the manufacturer according to the degree of the manufacturer's lot‐size relaxation. From each participant's viewpoint, an individual optimisation problem can be formulated from this relaxation model. We also note that two types of integration behaviours, i.e., vertical integration and horizontal integration, should be implemented to operate the supply chain system. A mathematical model is suggested for determining the operating policy. An example is given to illustrate the method.