Optimal Pricing and Procurement Strategies in a Supply Chain with Multiple Capacitated Suppliers

The scenario considered in this paper is a supply chain with multiple suppliers, all of whom have limited capacity. The demand over a finite planning horizon is known, and an optimal procurement strategy for this multiperiod horizon is to be determined. We supplement this scenario with the entry of a new supplier who is looking to price their products competitively. A single pricing decision is made for the duration of the horizon, and the prices offered by the other suppliers are known. Thus, we present here two models: one for the procurement decision maker and the other for the supplier. In fact, the supplier model is a bilevel model which uses the procurement model. We have solved several randomly generated instances of these problems and report encouraging numerical results. We also describe extensions of the model to include Nash games.