A Long-term Replenishment Contract under (R, S) Policy

(R, S)정책하에서의 장기 보충계약

  • Kim, Yong Chan (Department of Industrial Engineering, Hanyang University) ;
  • Kim, Jong Soo (Department of Industrial Engineering, Hanyang University)
  • Published : 2004.09.30

Abstract

By committing to a long-term replenishment contract, suppliers can mitigate the pressure to find new customers and afford to charge a discounted price to buyers seeking to lower their purchasing costs. In this paper, we develop an analytical model from buyer's perspective for the contracting process to investigate the buyer-supplier interactions. Based on the developed model, we propose an algorithm to derive optimal strategy for the contract. We consider a system with a single buyer and a supplier in a situation where the buyer's inventory is controlled by (R, S) policy under VMI setting. According to the contract, the supplier should replenish the buyer's inventory up to a fixed level every R times during a specified period. The buyer purchases any deficient amount from a spot market at a higher price. We show by computational experiment that our proposed algorithm finds the global optimum solution.

Keywords

References

  1. Barnes-Schuster, D., Bassok., Y., and Anupindi, R. (2002), Coordination and Flexibility in Supply Contracts with Options, Manufacturing and Service Operation Management, 4, 171-207
  2. Bassok, Y. and Anupindi, R. (1997), Supply Chain Management with Total Minimum Purchasing Commitment, IIE Transactions, 29, 373-381
  3. Brown, A. O. and Lee, H. L. (1997), Optimal Pay to Delay Capacity Reservation with Application to the Semiconductor Industry, Working Paper, University of Stanford
  4. Cachon, G. P. (2002), Supply Chain Coordination with Contracts, The Wharton School of Business, University of Pennsylvania, Philadelphia, PA
  5. Chen, F. Y. and Krass, D. (2001), Analysis of Supply Contracts with Minimum Total Order Quantity Commitments and Non-stationary Demands, European Journal of Operational Research, 131, 309-323
  6. Eppen, G. D. and Iyer, A. V. (1997), Backup Agreements in Fashion Buying-The Value of Upstream Flexibility, Management Science, 43, 1469-1484
  7. Hazra, J., Mahadevan, B., and Seshadri, S. (2002), Modeling Capacity Reservation Contract, 6th National Conference of the Society of Operations Management, Kozhikode, India
  8. Iyer, A. V. and Bergen, M. E. (1997), Quick Response in Manufacturer- Retailer Channels, Management Science, 43, 559-570
  9. Jin, M. and Wu, S. D. (2001), Modeling Capacity Reservation in High Tech Manufacturing, Department of Industrial and Systems Engineering, P.C. Rossin College of Engineering, Lehigh University
  10. Jung, B. R. and Kim, J. S. (2001), Multiple Replenishment Contract with Purchase Price Discount, Journal of Korean Institute of Industrial Engineers, 27(4), 345-351
  11. Kim, J. S., Shin, K. Y., and Ahn, S. E. (2003), A Multiple Replenishment Contract with ARIMA Demand Processes, Journal of the Operational Research Society, 54, 1189-1197
  12. Lariviere, M. A. (1998), Supply Chain Contracting and Coordination with Stochastic Demand, Chapter 8 in Tayur, S., Ganeshan, R., and Magazine, M. (Editors), Quantitative Models for Supply Chain Management, Kluwer Academic Publishers, 233-268
  13. Perry, M., Sohal, A. S., and Rumpf, P. (1999), Quick Response Supply Chain Alliances in the Australian Textiles, Clothing and Footwear Industry, International Journal of Production Economics, 62, 119-132
  14. Seifert, R. W., Thonemann, U. W., and Hausman, W. H. (2004), Optimal Procurement Strategies for Online Spot Markets, European Journal of Operational Research, 152, 781-799
  15. Serel, D.A., Dada, A., and Moskowitz, H.(2001), Sourcing Decision with Capacity Reservation Contract, European Journal of Operational Research, 131, 635-648
  16. Silver, E.A.,Pyke, D.F., and Peterson, R. (1998), Inventory Management and Production Planning and Scheduling, 3rd Edition, New York, John Wiley & Sons Inc
  17. Tsay, A. A. (1995), Supply Chain Control with Quantity Flexibility, Ph.D. dissertation, Graduate School of Business, Stanford University, Stanford, CA
  18. Tsay, A. A. (1999), The Quantity Flexibility Contract and Supplier-Customer Incentives, Management Science, 45, 1339-1358
  19. Tsay, A. A. and Lovejoy, W. S. (1999), Quantity Flexibility Contracts and Supply Chain Performance, Manufacturing & Service Operation Management, 1, 89-111