Simultaneous coordination of order quantity and reorder point in a two-stage supply chain

Abstract

In this paper, we investigate the simultaneous coordination of order quantity and reorder point in a two-stage supply chain (SC). While coordination of order quantity has received much attention in the supply chain management literature, coordination of the reorder point has been less-studied. The retailer's reorder point has a direct impact on product availability and customer service level (CSL) and therefore has a great impact on SC profitability. Our proposed model adopts a two-stage SC with stochastic demand and lead times over multiple periods. The proposed coordination model assures global optimization of order quantity–reorder point decisions. Using a pricing scheme with a discount factor, we extract conditions in which both downstream and upstream members have sufficient motivation to participate in the coordination scheme. Numerical experiments demonstrate that the proposed model can achieve channel coordination. Results of the modeling and analyses show that coordination of both reorder point and order quantity can lead to increased SC profitability as well as CSL improvement.