Title: Centralised and decentralised three echelon inventory model for optimal inventory decisions under price dependent demand

Authors: Dega Nagaraju; A. Ramakrishna Rao; S. Narayanan

Addresses: Manufacturing Division, School of Mechanical and Building Sciences, VIT University, Vellore-632014, Tamil Nadu, India ' Department of Mechanical Engineering, Annamacharya Institute of Technology and Sciences, Tirupati-517520, Andhrapradesh, India ' School of Mechanical and Building Sciences, VIT University, Vellore-632014, Tamil Nadu, India

Abstract: In this paper, a three echelon inventory system with a single manufacturer supplying a single kind of a product to a single distributor and then to a single retailer, is considered. Mathematical model is developed for annual total relevant costs of the coordinated and non-coordinated supply chain. The novel idea of the proposed model is that the demand is a function of retailer's unit selling price, which in turn is a function of retailer's replenishment quantity with dependence factor. The objective of the model is to demonstrate the optimality of inventory decisions, shipment frequencies and total relevant costs with respect to dependence factor. Numerical illustration is carried out to demonstrate the optimality of replenishment decisions. Finally, managerial insights are inferred in selecting the optimal replenishment quantity and shipment frequency that minimises the total relevant cost of the supply chain.

Keywords: dependence factor; price dependent demand; supply chain management; SCM; total relevant cost; inventory management; centralised inventory modelling; decentralised inventory modelling; optimisation; inventory decisions; mathematical modelling; coordinated supply chains; non-coordinated supply chains; shipment frequency; replenishment quantity; supply chain costs.

DOI: 10.1504/IJLSM.2016.073966

International Journal of Logistics Systems and Management, 2016 Vol.23 No.2, pp.147 - 170

Received: 28 Aug 2014
Accepted: 25 Sep 2014
Published online: 31 Dec 2015 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article