Supply Chain Single Vendor - Single Buyer Inventory Model with Price - Dependent Demand

Purpose: The aims of this article are to develop an integrated production-inventory-marketing model for a two-stage supply chain, and to study the effect of coordination on the performance of the system. The demand rate of the end customer is assumed to be sensitive to the selling price. The inventory models are developed, and then optimal values of the selling price, order quantity and number of shipments for the independent and also joint supply chain are determined. In addition, the effects of coordination and the parameters of the model on the optimal solution and the performance of the supply chain are investigated. Design/methodology: Mathematical modeling is used to obtain the profit functions of the vendor, the buyer and the whole supply chain. Then, the iterative solution algorithm is presented to solve the models and to determine the optimal solution in the coordinated/noncoordinated supply chain. Findings: It is observed that under joint optimization, the demand rate and the supply chain's profit are higher than their values under independent optimization, especially for the more price sensitive demand. Therefore, coordination between the buyer and the vendor is advantageous for the supply chain. On the other hand, joint optimization will be less beneficial when there isn't a significant difference between the buyer's and the vendor's holding costs. Originality/value: The main contribution of the article is to incorporate the pricing into ordering and shipping decisions of the supply chain with one vendor and one buyer, and also to investigate the effect of coordination on the optimal solution and performance. IsoIso.