Optimal lot sizing and inventory decisions in a centralised and decentralised two echelon inventory system with price dependent demand

In the present‐day scenario of global competitive environment, the consideration of the elasticity of demand has become one of the significant factors for designing effective supply chain coordination. In this paper, an integrated inventory model for optimal lot sizing and inventory decisions for centralised and decentralised supply chain with a single customer and single supplier considering ordering/setup costs, carrying costs and transportation costs of respective entities has been developed. The main contribution of this work is to demonstrate the implications of a dependence factor over the optimality of inventory levels, number of shipments and the total variable costs under price dependent demand which in turn is a function of replenishment quantity with dependence factor. A computer program is written in MATLAB as per the solution procedure developed to solve the model. Numerical example is devised to illustrate the optimality of decision variables, and objective function and also the sensitivity analysis is carried out.