Single‐manufacturer, multi‐retailer consignment policy for retailers’ generalized demand distributions

Single‐manufacturer, multi‐retailer consignment policy for retailers’ generalized demand distributions

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Article ID: iaor20126838
Volume: 63
Issue: 12
Start Page Number: 1708
End Page Number: 1719
Publication Date: Dec 2012
Journal: Journal of the Operational Research Society
Authors: , , ,
Keywords: supply & supply chains, simulation: applications, combinatorial optimization
Abstract:

Consignment policy (CP) is a novel approach to the inventory management in supply chains. It is based on strong interaction and reliable collaboration between vendor(s) and buyer(s), which is acquiring growing importance in today's industrial reality. Unlike most literature focusing on single‐vendor single‐buyer models and deterministic customer demand, a single‐manufacturer (vendor) multi‐retailer (buyer) generic model is developed under stochastic customer demand in this study. In order to understand the potential benefits of CP, it is compared with a traditional policy (TP) model developed in the similar approach. The models are tested with two scenarios of uniform and exponential demand distributions of the retailers. The results show how CP works better than the traditional uncoordinated optimization. It not only helps the manufacturer to generate higher profit, but also coordinates retailers to achieve a higher supply chain profit. At the same time, each retailer earns at least as much as they do in TP. Further price discount sensitivity analysis demonstrates the efficiency of CP when facing price‐demand fluctuation.

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