2003 Volume 54 Issue 1 Pages 53-59
Inventory policies are crucial to all buyers and suppliers. Recent research trends in inventory management and supply chain management have also focused on the impact of customer behavior on the system and the interaction or relationship among supply chain partners. The flow of business, such as information and logistics, is improved from the viewpoint of the whole supply chain (i.e., including the customer), and it becomes a target to have the optimum outcome as a complete system. Recently, Sharafali et al. presented some stochastic models of cooperation between the supplier and buyer, and discussed the effect of cooperation in (s, S) inventory policies. On the other hand, Cheung & Zhang focused on another source of demand information distortion that leads to the well-known "bullwhip effect" : customer order cancellation. They found that cancellations, as major sources of inventory information distortion, increase total system costs. In this study, we treat a supply chain system consisting of the supplier, buyer and customer, where the buyer corresponds to a wholesaler, and analyze the affection of (s, S) inventory policies for the supplier and buyer following customer order cancellations. We also determine the discount wholesale price of the supplier against the buyer in order to motivate the buyer to cooperate, because the expected profit of the buyer in the cooperative policy that maximizes the expected profits of the entire system is less than that in the independent policy.
