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Impact of uncertain demand and lead-time reduction on two-echelon supply chain

Author

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  • Sumon Sarkar

    (Jadavpur University)

  • Sunil Tiwari

    (National University of Singapore)

  • B. C. Giri

    (Jadavpur University)

Abstract

This paper develops a continuous-review vendor-buyer supply chain (SC) model wherein the lead-time (taken as replenished) is considered as a factor affected upon by the time stamp required for setup and production followed by transportation. Here, the production time indicates the interaction between the lot-size and lead-time. Assuming the existence of an opportunity with the buyer of reducing the replenishment lead-time. The buyer receives normally distributed stochastic lead-time demands from its customers. Due to the stochastic nature of lead-time demand, shortages may arise at the buyer’s side which is fully backlogged. We presume imperfection production at the vendor’s end, which leads to the generation of a certain ratio/percentage of defective products, which results in additional warranty costs for the vendor. This study intends to uncover the best policy that minimizes the system’s total expected cost. A solution algorithm with some lemmas is provided which helped in finding the optimal solution and to prove the uniqueness of the solutions. Findings demonstrate that a reduction in lead-time can effectively lower safety stock as well as the total cost.

Suggested Citation

  • Sumon Sarkar & Sunil Tiwari & B. C. Giri, 2022. "Impact of uncertain demand and lead-time reduction on two-echelon supply chain," Annals of Operations Research, Springer, vol. 315(2), pages 2027-2055, August.
    • Handle: RePEc:spr:annopr:v:315:y:2022:i:2:d:10.1007_s10479-021-04105-0
    DOI: 10.1007/s10479-021-04105-0
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    References listed on IDEAS

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