A model for buyer and supplier coordination and information sharing in order-up-to systems

Abstract

This study analyzed a logistics system consisting of a supplier that produces and delivers a single product and a buyer that receives and sells the product to retail customers. In this type of logistics system, the supplier and the buyer agree upon a contract specifying that the supplier will deliver the amount of product needed to increase the inventory of the buyer up to a predetermined order-up-to level at the beginning of each time period. A mathematical model was developed to construct methods to find the cost minimizing cycle lengths for both parties and the order-up-to level for the buyer. The proposed methods were tested for accuracy and execution speed in a variety of experimental settings. Analysis of the results revealed that the proposed methods determined the optimal control parameters for each party in a short time frame. Ultimately, a coordination mechanism based on a system wide cost minimization policy was proposed to ensure that system-wide costs are minimized while, at the same time, both parties benefit from coordinating their efforts.