Article ID: | iaor20133353 |
Volume: | 137 |
Issue: | 1 |
Start Page Number: | 45 |
End Page Number: | 54 |
Publication Date: | May 2012 |
Journal: | International Journal of Production Economics |
Authors: | Yuan Xue-Ming, Yeo Wee Meng |
Keywords: | supply & supply chains, demand, retailing, combinatorial optimization |
Supply contracts often specify the quantity of inventory for shipments where retailers are liable to pay for ordering costs if order quantity exceeds the contracted size. We analyze a periodic review system where the firm manages its demand that are reserved with a one‐period leadtime together with a multi‐tier supply contract. We show that the optimal inventory policy has the primary structure of ‘finite generalized base stock’ policy whose critical numbers depend on reservation parameters. The single, multiple periods and the infinite horizon models are studied. The presence of ordering costs needs a different approach from that in to analyze the infinite horizon model.