Streamlining inventory flows with time discounts to improve the profits of a decentralized supply chain

Streamlining inventory flows with time discounts to improve the profits of a decentralized supply chain

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Article ID: iaor20115927
Volume: 132
Issue: 2
Start Page Number: 230
End Page Number: 239
Publication Date: Aug 2011
Journal: International Journal of Production Economics
Authors: , ,
Keywords: inventory
Abstract:

We consider a decentralized supply chain, whereby a supplier sells a product to a group of independent buyers, and develop a strategy for the supplier to offer an all‐units price discount or cash rebate for orders that are synchronized with its replenishments. As synchronized orders can be met with inventory directly from receiving to shipping without warehousing, the proposed strategy streamlines system inventory flows to minimize inventory and, hence, the related costs. On the other hand, by increasing the replenishment interval of the supplier, the proposed strategy is able to induce buyers to order in large quantities and hence achieve the objectives of quantity discounts. We show that the proposed strategy can achieve nearly optimal (minimum) system cost, and is much more effective than the existing coordination strategies for decentralized supply chains in the literature.

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