(A) combined approach of pricing and (S-1, S) inventory policy in a two-echelon supply chain with lost sales allowed

Abstract

This thesis deals with a continuous-review two-echelon inventory control problem with one-to-one replenishment policy incorporated with lost sales allowed when demand arrives at Poisson processes. The problem is formulated using METRIC-approximation in a combined approach of pricing and (S-1, S) inventory policy, for which a heuristic solution algorithm is derived with respect to the corresponding a one-warehouse multi-retailers supply chain. In other words, the decisions on retail pricing and warehouse inventory policies are made in integration to maximize total profit in the supply chain. The objective function of the model consists of total revenue and total cost (holding cost and penalty cost). The model maybe be applied to supply chain systems dealing with expensive products like jewelry or deluxe cars where demands are subject to price changes. To test the effectiveness and efficiency of the proposed algorithm, numerical experiments are performed with two cases. The fist case deals with identical retailers and the second case deals with different retailers with different market sizes. The computational results show that the proposed algorithm is efficient and derives quite good decision.