The production size and inventory policy for a manufacturer in a two-echelon inventory model

Authors:
Chinho Lin;Yihsu Lin
Affiliations:
Department of Industrial and Information Management & Institute of Information Management, National Cheng Kung University, Tainan, Taiwan, ROC;Department of Industrial and Information Management, National Cheng Kung University, Tainan, Taiwan, ROC and Center of General Education, Southern Taiwan University of Technology, Tainan, Taiwan, ...
Venue:
Computers and Operations Research
Year:
2005

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Abstract

This paper proposes a two-echelon inventory model for a periodical commodity, in which the market and manufacturing channels are combined. This model can be used to solve the production policy, the order policies of the raw materials for the manufacturer, and order size for the retailer. By assuming that the retailers' demand obeys normal distribution and that the retailer makes orders according to the Newsboy Rule, we derive the necessary and sufficient Conditions for the optimal solution of production size, wholesale price, and replenishment cycle of raw materials for the manufacturer. Also, the necessary condition is explored in order to gain managerial insights and economic implications based on numerical examples and sensitivity analysis.