Coordinating a Supply Chain with an EOQ Model

Abstract

AbstractIn this paper, we consider a supply chain coordination scheme and issues in which a manufacturer supplies a product to a retailer. The retailer decides his optimal order quantity using an economic order quantity (EOQ) model which takes into consideration the shipment costs charged by the manufacturer. We show that under some circumstances, the manufacturer can offer a contract which includes a discount shipment fee per delivery and a shipment fee per unit to coordinate the supply chain and enhance the profits of both the manufacturer and the retailer. We also identify under which condition the manufacturer cannot coordinate the supply chain with shipment fees. This research highlights that the manufacturer needs to further investigate these conditions before offering and implementing a contract. Numerical examples are also included to illustrate the main results discussed in the paper.KeywordsEOQ modelSupply chain coordination