Modeling the inventory coordination decisions in a multi-stage supply chain

Abstract

In the past, supply chain production-inventory decisions were not wellcoordinated and information was not shared among the different relevant parties. However, recently, supply chain production and inventory coordination have been getting a lot of attention and because of that, numerous models on how to minimize the supply chain total cost and improve customer service have been developed. Currently, most of these developed models deal with two-stage chains. Although multi-stage supply chains were also considered, most of these developed models were based on certain restrictive assumptions. Therefore, there is a need to analyze models that are not restricted by the usual assumptions as this would allow for a more realistic analysis of the supply chain. The objective of this research is to identify the role of the supply chain decisions in the coordination and optimization of costs and accepted service levels. This was done by formulating mathematical optimization integrated models for the case of multi-stage non-serial supply chains. These models took into account three different inventory coordination mechanisms which were the equal cycle, the integer multipliers and powers of two multipliers. Then, the cost minimization procedures were applied in order to obtain feasible and satisfactory solutions to the problem. Numerical analysis indicated that the use of the integer multipliers coordination mechanism resulted in the lowest total costs. To entice this coordination, a benefit sharing scheme was proposed. In conclusion, the multi-stage supply chain cost efficiency can be improved drastically via centralized inventory coordination, mutual trust and proper coordination using a benefit sharing scheme.