Integrated multi-product, multi-level supply chain inventory model with joint replenishment and loss sharing

The size and frequency of orders placed by buyers affect the inventory replenishment policies of upstream supply chain members as well. Cooperation among supply chain parties plays a paramount role in improving the performance of inventory control and designing a cost-effective supply chain. This study develops an integrated inventory model for a three-tiered supply chain comprising of multiple suppliers delivering multiple products to a single manufacturer. Our paper makes the following contributions to the literature. First, a grouping method is proposed to handle cost and order calculation for multiple products. Second, we evaluate the total relevant cost for both the system and the supply chain members by employing a joint economic lot sizing model under various coordination scenarios. Finally, we propose a loss-sharing mechanism to compensate supply chain members who are worse off due to coordination. We use real data of an electronic device manufacturing company in extensive numerical studies and provide managerial implications.