A serial supply chain of newsvendor problem with safety stocks under complete and partial information sharing

A serial supply chain of newsvendor problem with safety stocks under complete and partial information sharing

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Article ID: iaor201110608
Volume: 135
Issue: 1
Start Page Number: 412
End Page Number: 419
Publication Date: Jan 2012
Journal: International Journal of Production Economics
Authors: ,
Keywords: combinatorial optimization
Abstract:

We consider a supply chain where multiple members are serially connected. The decision is to determine the ordering quantity of a member to the next upstream member in the supply chain. The basic cost model is similar to the newsvendor problem with additional consideration to safety stock. This paper presents optimal approaches for coordination of the supply chain under both complete and partial information sharing in order to maximize the total expected benefit. For complete information sharing we develop an optimal coordination algorithm. For partial information sharing, we propose an optimal coordination algorithm based on the Alternating Direction Method and the Diagonal Quadratic Approximation Method. A numerical example is discussed to show the optimal convergence of ordering quantities and discuss the properties of the proposed algorithms.

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