Coordinated Two-Echelon Inventory Model for Optimal Inventory and Shipment Decisions under Exponential Price Dependent Demand

Abstract

In this paper, a two echelon inventory system with a single-warehouse and single-retailer is considered. Mathematical model is developed for the retailer, warehouse and for the entire chain by incorporating the ordering/setup costs, carrying costs and transportation costs. Replenishment quantity at the retailer and the number of shipments from the warehouse to the retailer are considered as the decision variables. The objective of the proposed work is to demonstrate the optimality of centralised inventory & shipment decisions and total relevant costs at the respective entities and the chain. Numerical example is considered and the model is solved using the computer program written in MATLAB. From the research findings, it is concluded that the percentage variation in optimality of total transportation cost of the supply chain is in decreasing order with respect to the increased ordering cost of the retailer and set-up cost of the manufacturer. Finally, few managerial implications are derived based on the sensitivity analysis.