Optimal selling price, replenishment lot size and number of shipments for two-echelon supply chain model with deteriorating items

• Published in: Decision Science Letters Vol. 7; no. 3; pp. 311 - 322
• Main Authors: Nasiri pour, Amir, Najafi Ghobadi, Somayeh
• Format: Journal Article
• Language: English
• Published: Growing Science 01.10.2018
• Subjects: Deteriorating item; Lot-sizing; Multiple shipments; Pricing
• ISSN: 1929-5804; 1929-5812
• DOI: 10.5267/j.dsl.2017.7.001

This paper deals with a pricing and production-distribution model for a deteriorating item in a two-echelon supply chain. The profit function for the manufacturer and retailer in the integrated supply chain is derived. The manufacturer's production batch size is regulated to an integer multiple of the discrete delivery lot quantity to the retailer. The objective is to maximize the total profit per unit time by finding the optimal selling price, production lot size, total cycle time, number of deliveries, and delivery lot size, simultaneously. Based on the notion of optimal interval, we outline an effective algorithm for finding the optimal solution. Finally, the authors present a numerical example to illustrate the theoretical results of the model. Sensitivity analysis for the optimal solution with respect to major parameters is also carried out. The results show that, when the deterioration rate increases, both the optimal production lot size and cycle time decrease. It is interesting to note that an increase in the deterioration rate also tends to reduce the delivery lot size without affecting the number of deliveries per production batch. Also, the optimal interval for N does not change when deterioration rate changes. Reductions in the inventory cycle times for both parties demonstrate the negative effects of deterioration on the supply chain.