An Inventory Model For Multi-Echelon Supply Chains With Price- and Inventory-Level-Dependent Demand
supply chain management
Price dependent demand
Inventory level dependent demand
Multi echelon supply chain
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AbstractGiven the nature of highly competitive markets, most supply chains try to optimize their processes by reducing costs and increasing customer satisfactions. Hence, managers attempt to closely follow changes in customers’ buying behaviour relative to product price and availability. Such behaviour directly affects the inventory management of a supply chain since the demand patterns change. This research targets decision making for pricing and replenishing a product, i.e. price, reorder point, and order quantity, to benefit the overall supply chain. An inventory model for a multi-echelon supply chain with price- and inventory level- sensitive demand is developed in this research in a progressive manner. First, the inventory system of a retailer facing a price and inventory level dependant demand function is studied. The results of the analytical model in this section answer the questions related to the order quantity, and the magnitude and timing of price changes in order to maximize the profit for the retailer. Second, the inventory system for a supply chain consisting of a retailer and a manufacturer with a price-dependent demand is analyzed both analytically and using discrete-event simulation-optimization. The results of these analyses address the benefits of cooperation in pricing and replenishment decisions. This section also answers the questions related to the retailers order quantity, the production quantity of the manufacturer, and the price level. Finally, an inventory system of a supply chain including a retailer, a distribution centre and a manufacturer is analyzed. Simulation-optimization is used to find the optimal strategy for the joint pricing and replenishment problem. The results of this last section provide answers as to the timing and quantity of the orders, the pricing, and how the ordering policy is affected. This research also explores the differences in pricing and replenishment policies for different demand functions and answers the question of whether it is worthwhile, considering the computational complications, to contemplate price- and stock- dependency of demands while coordinating supply chains. In this research an empirical research method is also used to evaluate the assumptions of price- and inventory level- dependency of demand for different products available in a grocery store. The results of this thesis support the proposition that collaborations in inventory management decision-makings benefit the whole supply chain, even if all the firms do not participate in collaboration. It also supports investigating the price- and inventory level- dependency of demand in order to maximize the profits for the supply chain.
Haskayne School of Business