Chemical supply chain coordination based on technology level and lead-time considerations

Abstract

The production and transportation of chemicals is a risky process with high-cost operations for members of the supply chain, where some of the materials deteriorate over time and deal with value-reduction challenges. This paper studies a two-stage hazardous chemicals supply chain with a supplier and a manufacturer in a finite time horizon with a constant deterioration rate for both sides. To prevent potential hazards and improve product quality, the manufacturer invests in risk reduction and quality improvement technologies that can also attract more market demand. Owing to the importance of time in the storage and production of chemical products, this study focuses on a novel lead-time based discount contract to coordinate the channel members. The contract seeks to maximize the total profit of the chain by determining the optimal lead-time and manufacturer’s technology level. By doing so, the supplier provides high-quality products and the manufacturer’s unit supplying cost reduces and can buy more chemicals from the supplier. On the other hand, the supplier will have more time to supply the product and its initial cost will be reduced. As a result, the profit of both sides increases simultaneously. Some numerical examples are applied to examine the applicability of the proposed models. Finally, several sensitivity analyses on the main parameters are conducted to extract some in-depth managerial implications.