A cost sharing-based coordination mechanism for multiple deteriorating items in a one manufacture-one retailer supply chain

Abstract

In this paper, an inventory model for deterioration items in a two-echelon supply chain including one retailer and one manufacturer is proposed by considering the stock and price dependent demand and capacity constraint for holding inventories. First, the model is presented as a leader-follower game in which the manufacturer announces wholesale prices. Second, the retailer decides for the order quantity and price of the items based on the wholesale prices. Then, by introducing the integrated model of the supply chain, a cost-sharing contract is applied to coordinate the manufacturer and the retailer. On the other hand, by using the convergence properties of the model and proving non-concavity of the problem, a meta-heuristic algorithm, namely iterative local search (ILS) is proposed to solve the models. The results show the determinant role of the capacity constraint on the optimal decisions and the ability of the proposed contract to coordinate the supply chain. Moreover, it is shown that the proposed algorithm outperforms the well-known interior point algorithm as the results of the initiations embedded in it for the special problem.