Supply Chain Coordination using Different Modes of Transportation Considering Stochastic Price-Dependent Demand and Periodic Review Replenishment Policy

In this paper, an incentive scheme based on crashing lead time is proposed to coordinate a supplier-retailer supply chain (SC). In the investigated SC, the supplier applies a lot-for-lot replenishment policy to replenish its stock and determines the replenishment multiplier. Moreover, the transportation lead time is considered under the control of the supplier. The retailer as downstream member manages his inventory system according to the periodic review replenishment system (R, T). The review period (T) and order-up-to level (R) decisions along with the retail price are simultaneously optimized by the retailer. These decisions are made by the retailer influence the profitability of SC as well as the supplier's profitability. The investigated SC is modeled under three different decision making structures, i.e., (1) decentralized decision making model, (2) centralized decision making model, and (3) coordinated decision making model. By developing a lead time reduction policy as an incentive strategy, the pricing and periodic review replenishment decisions are coordinated. In the proposed incentive approach, the supplier by spending more cost and changing a fast transportation mode aims to crash the lead time in order to entice the retailer to accept the joint decision making strategy. In the suggested incentive scheme, two transportation modes (one slow and one fast) are supposed. Further, maximum and minimum lead time reduction, which are acceptable for both members, are determined. Moreover, a set of numerical examples along with a real case are carried out to demonstrate the performance and applicability of the developed models. The results demonstrate that the proposed incentive strategy is able to achieve channel coordination. Moreover, the results show the applicability of the developed coordination model under the high demand uncertainty. In addition, the proposed coordination model will fairly share the obtained profits between two SC members.