Coordination of Pricing, Ordering, and Lead time Decisions in a Manufacturing Supply Chain

Abstract

In this paper, an incentive policy is proposed to coordinate ordering, lead time, and pricing strategies in a two-echelon manufacturing supply chain (SC) consisting of one manufacturer and one retailer. The system is faced with a stochastic demand which depends on both price and lead time. The manufacturer decides on production size and manufacturing acceleration rate while the retailer determines the retail price and order size. A game-theory approach is proposed to analyze both members' decision making process. An integrated decision making process where both members cooperate as a single entity aiming to maximize system-wide profit is formulated. Finally a coordination mechanism based on adjusting wholesale price is proposed to convince both members to decide jointly. Numerical experiments demonstrate that whole SC profitability as well as both members profitability is increased by applying the proposed scheme. Results indicate that coordinated decision making decreases both retail price and lead time length while it causes an increase in order size.