Coordination supply chain management under flexible manufacturing, stochastic leadtime demand, and mixture of inventory

Abstract

The necessity of coordination among entities is essential for the success of any supply chain management (SCM). This paper focuses on coordination between two players and cost-sharing in an SCM that considers a vendor and a buyer. For random demand and complex product production, a flexible production system is recommended. The study aims to minimize the total SCM cost under stochastic conditions. In the flexible production systems, the production rate is introduced as the decision variable and the unit production cost is minimum at the obtained optimal value. The setup cost of flexible systems is higher and to control this, a discrete investment function is utilized. The exact information about the probability distribution of lead time demand is not available with known mean and variance. The issue of unknown distribution of lead time demand is solved by considering a distribution-free approach to find the amount of shortages. The game-theoretic approach is employed to obtain closed-form solutions. First, the model is solved under decentralized SCM based on the Stackelberg model, and then solved under centralized SCM. Bargaining is the central theme of any business nowadays among the players of an SCM to make their profit within a centralized and decentralized setup. For this, a cost allocation model for lead time crashing cost based on the Nash bargaining model with the satisfaction level of SCM members is proposed. The cost allocation model under Nash bargaining achieves exciting results in SCM coordination. © 2020 by the authors.