Optimal production, ordering and pricing in a two-echelon supply chain with uncertain demand

This paper applies bi-level programming to model production, ordering and pricing in a decentralized supply chain which consists of one manufacturer as the leader and three retailers as the followers. We assume the retailers face uncertain demand of a single product. Genetic algorithm is developed to solve this problem. Based on the numerical examples, we show that the manufacturer's different production will result in different profit when other parameters are fixed, and there exists an optimal production point which will maximize the manufacturer's profit. Pricing and ordering strategies of the manufacturer and the retailers are also discussed under their relationship in the decentralized supply chain. © 2014 ICIC International.