A decision rule for coordination of inventory and transportation in a two-stage supply chain with alternative supply sources

  • Authors:
  • İsmail Çapar;Burak Ekşioğlu;Joseph Geunes

  • Affiliations:
  • Department of Engineering Technology and Industrial Distribution, Texas A&M University, 3367 TAMU College Station, TX 77843-3367, United States;Department of Industrial and Systems Engineering, Mississippi State University, P.O. Box 9542, Mississippi State, MS 39762, United States;Department of Industrial and Systems Engineering, University of Florida, 303 Weil Hall, Gainesville, FL 32611-2083, United States

  • Venue:
  • Computers and Operations Research
  • Year:
  • 2011

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Abstract

This paper deals with a two-stage supply chain that consists of two distribution centers and two retailers. Each member of the supply chain uses a (Q,R) inventory policy, and incurs standard inventory holding and backlog costs, as well as ordering and transportation costs. The distribution centers replenish their inventory from an outside supplier, and the retailers replenish inventory from one of the two distribution centers. When a retailer is ready to replenish its inventory that retailer must decide whether it should replenish from the first or second distribution center. We develop a decision rule that minimizes the total expected cost associated with all outstanding orders at the time of order placement; the retailers then repeatedly use this decision rule as a heuristic. A simulation study which compares the proposed policy to three traditional ordering policies illustrates how the proposed policy performs under different conditions. The numerical analysis shows that, over a large set of scenarios, the proposed policy outperforms the other three policies on average.