A two-level supply chain with partial backordering and approximated Poisson demand

Abstract

We consider a two-level supply chain with a number of identical, independent ‘retailers’ at the lower echelon and a single supplier at the upper echelon controlled by continuous review inventory policy ( R, Q). Each retailer experiences Poisson demand with constant transportation times. We assume constant lead time for replenishing supplier orders from an external warehouse to the supplier and unsatisfied retailer orders are backordered in the supplier. We assume that the unsatisfied demand is partially backordered in the identical retailers. The partially backordering policy is implemented in the identical retailers using an explicit control parameter ‘ b’ which limits the maximum number of backorders allowed to be accumulated during the lead time. We develop an approximate cost function to find optimal reorder points for given batch sizes in all installations, the optimal value of b in the identical retailers and the related accuracy is assessed through simulation.