Inventory control in a two‐echelon dual‐channel supply chain with setup of production and delivery

This paper considers a two‐echelon dual‐channel supply chain model with setup of production and delivery and develops a new inventory control policy for the supply chain. Previously, a two‐echelon supply chain model without setup of production and delivery is considered and a one‐for‐one inventory control policy is applied to the supply chain. In the inventory control policy, production is stopped when the warehouse inventory reaches the upper limit and is started again immediately after the inventory drops below the limit. Moreover, delivery to the retailer is stopped when the store inventory reaches the upper limit and is started again immediately after the inventory drops below the limit. The total cost that consists of inventory holding costs and lost sales cost is considered, and setup costs are not considered in the total cost. Once setup costs are introduced, the one‐for‐one inventory control policy is no longer appropriate. Then, this paper develops a new control policy for the two‐echelon dual‐channel supply chain with setup of production and delivery. As performance measure, the total cost that consists of inventory holding costs, lost sales cost, and production and delivery setup costs is considered, and the total cost calculated on the basis of Markov analysis demonstrates the effectiveness of the proposed control policy.