Stochastic models for the coordinated production and shipment problem in a supply chain

Authors:
Onur Kaya;Deniz Kubalı;Lerzan ÖRmeci
Affiliations:
Department of Industrial Engineering, Koc University, Sariyer, Istanbul 34450, Turkey;Department of Industrial Engineering, Koc University, Sariyer, Istanbul 34450, Turkey;Department of Industrial Engineering, Koc University, Sariyer, Istanbul 34450, Turkey
Venue:
Computers and Industrial Engineering
Year:
2013

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Abstract

In this study, we consider the coordination of transportation and production policies between a single supplier and a single retailer in a stochastic environment. The supplier controls the production, holds inventory and ships the products to the retailer to satisfy the external demand. We model the system as a Markov decision process, and show that the optimal production and transportation decisions are complex and non-monotonic. Therefore, we analyze two widely-used shipment policies in the industry as well, namely time-based and quantity-based shipment policies in addition to a hybrid time-and-quantity based shipment policy. We numerically compare the performances of these policies with respect to the optimal policy and analyze the effects of the parameters in the system.