Coordination and Optimization: The Integrated Supply Chain Analysis  with Non-Linear Price-Sensitive Demand

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Abstract

In this paper, a supply chain with a coordination mechanism consisting of a single vendor and buyer is considered. Further, instead of a price sensitive linear or deterministic demand function, a price-sensitive non-linear demand function is introduced. To find the inventory cost, penalty cost and transportation cost, it is assumed that the production and shipping functions of the vendor are continuously harmonized and occur at the same rate. In this integrated supply chain, the Buyer’s Linear Program (LP), vendor’s Integer Program (IP) and coordinated Mixed Integer Program (MIP) models are formulated. In this research, numerical example is presented which includes the sensitivity of the key parameters to illustrate the models. The solution procedures demonstrate that the individual profit as well as joint profit could be increased by a coordination mechanism even though the demand function is non-linear. In addition, the results illustrate that Buyer’s selling price, along with the consumers purchasing price, could be decreased, which may increase the demand of the end market. Finally, a conclusion is drawn in favor of the coordinated supply chain with a non-linear price sensitive demand function

Keywords

Coordination between vendor and buyer

Inventory management mixed integer program

Nonlinear demand

Conflict of interest

The authors declare they have no competing interests.

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