Coordination of dynamic lot-sizing in supply chains

This paper presents a new scheme for the coordination of dynamic, uncapacitated lot‐sizing problems in two‐party supply chains where parties’ local data are private information and no external or central entity is involved. This coordination scheme includes the following actions: At first, the buyer generates a series of different supply proposals using an extension of her local lot‐sizing problem. Then the supplier calculates his cost changes that would result from the implementation of the buyer’s proposals. Based on these information, parties can identify the best proposal generated. The scheme identifies the system‐wide optimum in different settings–for instance in a two‐stage supply chain where the supplier’s costs for holding a period’s demand in inventory exceed his setup costs.