On conflict and cooperation in a two-echelon inventory model for deteriorating items

Authors:
Yi-Hsu Lin;Chinho Lin;Binshan Lin
Affiliations:
Department of Business Administration, Southern Taiwan University, Tainan, Taiwan;Department of Industrial and Information Management & Institute of Information Management, National Cheng Kung University, Tainan, Taiwan;BellSouth Corporation Professor College of Business Administration, BE321 Louisiana State University in Shreveport, Shreveport, LA 71115, United States
Venue:
Computers and Industrial Engineering
Year:
2010

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Abstract

Four scenarios are proposed concerning cooperative behavior for inventory policies between suppliers and retailers: no information is shared; the supplier is dominant during negotiations with retailers; the retailer is dominant during negotiations with suppliers; and the supplier and retailer cooperate. Unlike other studies, we consider deteriorating items and permit completed backorders, with a fixed service rate, in the models for these four scenarios. We explore the optimality of these models and present a procedure to find the optimal solution. Numerical examples are provided to illustrate the procedure, which are also used for sensitivity analysis. The results show that the cooperation scenario with information sharing is the best way to reach a win-win position. However, some compensation programs might be required to persuade suppliers or retailers to cooperate when one of them faces a loss of profits in a cooperative scenario.