A Coordination Model Under an Order-Up-To Policy

Article type: Research Article

Authors: Kim, Jong Soo | Jeong, Won Chan

Affiliations: Department of Industrial and Management Engineering, Hanyang University, Erica Campus, Sa 3-dong, Sangnok-gu, Ansan-si, 426-791, South Korea, e-mail: pure@hanyang.ac.kr | Department of Industrial and Management Engineering, Graduate School, Hanyang University, Haengdang 1-dong, Seongdong-gu, Seoul, 133-791, South Korea, e-mail: wcjeong@mecors.hanyang.ac.kr

Abstract: A logistics system that involves a supplier who produces and delivers a single product and a buyer who receives and sells the product to the final customers was analyzed. A mathematical model was developed to describe the behavior of the system and to derive the optimal cycle length and order-up-to levels for the two parties. An analysis of the obtained results revealed that the methods were able to determine the optimal control parameters for each party in a short time frame. A coordination mechanism based on the optimal policies was ultimately proposed so that each party benefits more than if they use their own optimal control policy.

Keywords: inventory control, buyer-supplier model, stochastic demand, periodic policy

Journal: Informatica, vol. 23, no. 2, pp. 225-246, 2012