COORDINATING SUPPLY CHAIN INVENTORIES IN MULTI-ECHELON NETWORKS

Coordination is the management of dependencies between activities. The purpose of coordination is to achieve collectively goals that individual actors cannot meet. Coordination within a supply chain is strategic responses to the problems that arise from inter - organizational dependencies within the chain. Given the increasing importance of inventory management and cost reduction to be gained through supply chain coordination, the challenge to an organization is how to select the appropriate coordination mechanism to benefit all the players of a supply chain. The present study proposes a model to study and analyze the benefit of coordinating supply chain inventories through the use of common replenishment time periods. It investigates the coordination of order quantities amongst the players in a three level supply chain with a centralized decision process. The first level of supply chain consists of multiple buyers, the second level of a single manufacturer, and the third level consists of multiple suppliers. Each supplier supplies one or more items required in the manufacture of the product produced. When players in the supply chain agree to coordinate, it is possible to have some of the players benefiting more than others in the chain. Under the proposed strategy, the manufacturer specifies common replenishment periods and requires all buyers to replenish only at those time periods. To effect the coordination manufacturer offers a price discount to entice the buyers to accept this strategy. The model developed in this work guarantees that the local costs for the players either remain the same as before coordination, or decrease as a result of coordination. A mathematical model is developed, and numerical study is conducted to evaluate the benefit of the proposed coordinated theory.