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An algorithm for the determination of the economic order quantity in a two-level supply chain with transportation costs: Comparison of decentralized with centralized decision

Baboli, A ; Sharif University of Technology | 2008

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  1. Type of Document: Article
  2. DOI: 10.1007/s11518-008-5080-z
  3. Publisher: 2008
  4. Abstract:
  5. This paper considers a two-level supply chain consisting of one warehouse and one retailer. In this model we determine the optimal ordering policy according to inventory and transportation costs. We assume that the demand rate by the retailer is known. Shortages are allowed neither at the retailer nor at the warehouse. We study this model in two cases; decentralized and centralized. In the decentralized case the retailer and the warehouse independently minimize their own costs; while in the centralized case the warehouse and the retailer are considered as a whole firm. We propose an algorithm to find economic order quantities for both the retailer and the warehouse which minimize the total system cost in the centralized case. The total system cost contains the holding and ordering costs at the retailer and the warehouse as well as the transportation cost from the warehouse to the retailer. The application of this model into the pharmaceutical downstream supply chain of a public hospital allows obtaining significant savings. By numerical examples, the costs are computed in MATLAB© to compare the costs in the centralized case with decentralized one and to propose a saving-sharing mechanism through quantity discount. © 2008 Systems Engineering Society of China and Springer-Verlag GmbH
  6. Keywords:
  7. Health ; Hospitals ; Industrial economics ; Public policy ; Supply chain management ; Supply chains ; Warehouses ; Wireless telecommunication systems ; Demand rates ; Economic order ; Economic order quantity ; Inventory control ; Medical supply chain ; Optimal ordering policy ; Saving-sharing mechanism ; Transportation ; Transportation costs ; Sales
  8. Source: Journal of Systems Science and Systems Engineering ; Volume 17, Issue 3 , 16 July , 2008 , Pages 353-366 ; 10043756 (ISSN)
  9. URL: https://link.springer.com/article/10.1007/s11518-008-5080-z