Integrated multistage supply chain inventory model of multiple retailers with imperfect production and inspection systems

Abstract

An integrated multistage supply chain inventory model containing a single manufacturer and multiple retailers is proposed to consider deteriorating raw materials and finished products with imperfect production and inspection systems. The main purpose is to jointly determine the manufacturer’s production and delivery strategies and the retailers’ replenishment strategies to maximize the integrated total profit. First, the individual total profit functions of the manufacturer and multiple retailers are established and are integrated to form the total profit function of the supply chain system. Then, to address the model complexity, an algorithm is proposed to obtain the optimal solution. Several practical numerical examples are presented to demonstrate the solution procedure, and a sensitivity analysis is performed on the major parameters. From the numerical results, several findings that differ from those in the previous literature were observed. First, retailers with larger market scale, better cost control, and/or inspection capabilities guarantee higher individual and integrated total profits. Second, increasing the deterioration rates of raw materials and finished products has different effects on the order quantity of raw materials. Third, the manufacturer’s shipping strategy is rigid and not easily changed except for significant changes (increase or decrease by 20%) to the production rate or selling price. The performance of the proposed model has several meaningful management implications.