A Supply Chain Coordination Mechanism for Common Items Subject to Failure in the Electronics, Defense, and Medical Industries
Sher, Mikhail M.; Kim, Seung-Lae; Banerjee, Avijit; Paz, Michael
Improved production processes, particularly miniaturization, have led to the development and use of non-reworkable items subject to failure in modern production environments. Coordinating supply chains for these items requires cooperation between suppliers and buyers in order to balance ordering/setup and holding costs among system partners. In this paper, we first determine optimal inventory policies for both the supplier and buyer. We then apply the bisection method to develop a mechanism which uses a common replenishment time to coordinate a supply chain consisting of a single supplier and n buyers. By utilizing this optimization framework, we minimize total system-wide costs and derive the cost savings associated with our coordinated solution. Numerical examples are then provided for illustration.
inventory; bisection method; supply chain coordination; supply chain management; JEL C44
Required Publisher Statement: Copyright held by the authors. Reprinted with permission. All rights reserved.