Improved production processes, particularly miniaturization, have led to the development and use of non-reworkable items subject to failure in modern production environments. Coordinating supply chains for these items requires cooperation between suppliers and buyers in order to balance ordering/setup and holding costs among system partners. In this paper, we first determine optimal inventory policies for both the supplier and buyer. We then apply the bisection method to develop a mechanism which uses a common replenishment time to coordinate a supply chain consisting of a single supplier and n buyers. By utilizing this optimization framework, we minimize total system-wide costs and derive the cost savings associated with our coordinated solution. Numerical examples are then provided for illustration.
Sher, M. M., Kim, S-L., Banerjee, A., & Paz, M. T. (2017). A supply chain coordination mechanism for common items subject to failure in the electronics, defense, and medical industries. [Electronic version]. Retrieved [insert date], from Cornell University, School of Hospitality Administration site: http://scholarship.sha.cornell.edu/workingpapers/27