Coordinating a three-level supply chain with multiple suppliers, a vendor and multiple buyers

Abstract

This paper investigates the coordination of order quantities amongst the players in a three-level supply chain with a centralized decision process. The first level of the supply chain consists of multiple buyers, the second level of a vendor (e.g., manufacturer), and the third level consists of multiple suppliers. Each supplier supplies one or more items required in the manufacture of the product produced. Survey of earlier research reveals that players in a supply chain usually have conflicting interests, such as reducing inventories and increasing profitability. When players in a supply chain agree to coordinate, it is possible to have some of the players benefiting more than others in the chain. The model developed in this paper guarantees that the local costs for the players either remain the same as before coordination, or decrease as a result of coordination. Furthermore, this paper assumes that savings generated from coordination would be distributed among the players of the chain. A mathematical model is developed, with numerical examples presented and results discussed.