A Vendor-Buyer Stochastic Inventory Model with Lead Time Reduction in Supply Chain

Abstract

Time-based competition strategy embodies lead time reduction (LTR) at operational level in supply chain. When supply chain channel puts LTR into practice, there exist two questions: how LTR to effect on profit of supply chain actors and if LTR may not make both supply actors better off, how to coordinate the supply channel? A single shorter-life-cycle product model of the supplier-retailer decentralized decision-making supply chain is proposed in this paper. On the assumption that the mean demand is constant and the variance of the forecasted demand is in inverse proportion to lead time, the quantitative relations between lead time and profits of supply chain and supply chain actors are formulated. By logical analysis and numerical instance, we come to conclusions: (1) If service level is more than 0.5, LTR cannot make supply actors Pareto improvement; If service level is not more than 0.5, LTR makes both supplier and retailer better off. (2) When service level in supply chain is more than 0.5, a supply contract, linear transfer mechanism, is introduced to coordinate supply chain channel, and the contract can apportion at will profit increment under LTR in supply chain between supplier and retailer by tuning the contract parameters.