Cooperation Models between the Supplier and Buyer in a Supply Chain

Abstract

Inventory policies are crucial to all buyers and suppliers. The rapidly developing global market place has made the industrial environment more competitive. As a result, 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. A key question that needs to be addressed in improving supply chain efficiency is managing the interaction or relationship among the 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, Erenguc et al. pointed out that a dominant firm in the supply chain usually tends to optimize locally with no regard to its impact on the other members of fostering more cooperative agreements in the chain. Sharafali et al. presented some stochastic models for understanding the cooperation between the supplier and buyer, and discussed the effect of cooperation in a reordering point system. They considered a two-stage supply chain with one buyer and one supplier. But most of the supply chain has many stages. So in this study, we utilize a supply chain system consisting of a supplier, buyer1 and buyer2, and analyze the effect of the reordering point system for the supplier and two buyers when they cooperatively determine their optimal order quantities. For that purpose, we first formulate their respective inventory policies and decide their optimal ordering quantities and reorder points to minimize their costs. Next, we investigate the case where the supplier and two buyers jointly determine the optimal ordering quantities and reorder points to minimize total costs. Based on the result, we also analyze a supply chain system consisting of the supplier and many buyers, and consider the importance of cooperation among supply chain partners.