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Optimizing Supply Chain Design under Demand Uncertainty with Quantity Discount Policy

Author

Listed:
  • Jung-Fa Tsai

    (Department of Business Management, National Taipei University of Technology, Taipei 106344, Taiwan)

  • Peng-Nan Tan

    (Department of Business Management, National Taipei University of Technology, Taipei 106344, Taiwan)

  • Nguyen-Thao Truong

    (Department of Business Management, National Taipei University of Technology, Taipei 106344, Taiwan)

  • Dinh-Hieu Tran

    (Department of Business Management, National Taipei University of Technology, Taipei 106344, Taiwan)

  • Ming-Hua Lin

    (Department of Urban Industrial Management and Marketing, University of Taipei, Taipei 111036, Taiwan)

Abstract

In typical business situations, sellers usually offer discount schemes to buyers to increase overall profitability. This study aims to design a supply chain network under uncertainty of demand by integrating an all-unit quantity discount policy. The objective is to maximize the profit of the entire supply chain. The proposed model is formulated as a mixed integer nonlinear programming model, which is subsequently linearized into a mixed integer linear programming model and hence able to obtain a global solution. Numerical examples in the manufacturing supply chain where customer demand follows normal distributions are used to assess the effect of quantity discount policies. Key findings demonstrate that the integration of quantity discount policies significantly reduces total supply chain costs and improves inventory management under demand uncertainty, and decision makers need to decide a balance level between service levels and profits.

Suggested Citation

  • Jung-Fa Tsai & Peng-Nan Tan & Nguyen-Thao Truong & Dinh-Hieu Tran & Ming-Hua Lin, 2024. "Optimizing Supply Chain Design under Demand Uncertainty with Quantity Discount Policy," Mathematics, MDPI, vol. 12(20), pages 1-16, October.
  • Handle: RePEc:gam:jmathe:v:12:y:2024:i:20:p:3228-:d:1499358
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    References listed on IDEAS

    as
    1. Ming-Hua Lin & Jung-Fa Tsai & Pei-Chun Wang & Yu-Ting Ho, 2019. "A coordinated production planning model with capacity expansion for supply chain networks," European Journal of Industrial Engineering, Inderscience Enterprises Ltd, vol. 13(4), pages 435-460.
    2. Qin, Yan & Wang, Ruoxuan & Vakharia, Asoo J. & Chen, Yuwen & Seref, Michelle M.H., 2011. "The newsvendor problem: Review and directions for future research," European Journal of Operational Research, Elsevier, vol. 213(2), pages 361-374, September.
    3. Anna Timonina‐Farkas & René Y. Glogg & Ralf W. Seifert, 2022. "Limiting the impact of supply chain disruptions in the face of distributional uncertainty in demand," Production and Operations Management, Production and Operations Management Society, vol. 31(10), pages 3788-3805, October.
    4. Lin Chen & Ting Dong & Jin Peng & Dan Ralescu, 2023. "Uncertainty Analysis and Optimization Modeling with Application to Supply Chain Management: A Systematic Review," Mathematics, MDPI, vol. 11(11), pages 1-45, May.
    5. Nihat Altintas & Feryal Erhun & Sridhar Tayur, 2008. "Quantity Discounts Under Demand Uncertainty," Management Science, INFORMS, vol. 54(4), pages 777-792, April.
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