Coordinated Inventory Model with Compensation Policy in Three-level Supply Chain

Jeong Hun Lee

In this paper, we first introduce the general concept, origin and importance of information sharing in supply chain management. We develop inventory models for a special type of supply chain with three level supply chain (one supplier, one warehouse, and one retailer) and consider the problem of determining the optimal integer multiple n of time interval, time interval between successive setups and orders in coordinated supply chain with three levels. The focus of this model is minimization of the coordinated total relevant cost, and then we apply the existing sharing technique for benefits and losses in two level supply chains to our three level model. The optimal solution procedural steps for the developed model are derived and the effects of compensation policy on the optimal results are also studied with the help of numerical examples.