Title: 'Consignment stock' for a two-level supply chain with entropy cost

Authors: Mohamad Y. Jaber; Simone Zanoni; Lucio E. Zavanella

Addresses: Department of Mechanical and Industrial Engineering, Ryerson University, Toronto, ON, M5B 2K3, Canada ' Department of Mechanical and Industrial Engineering, Università degli Studi di Brescia, Via Branze, 38, I-25123, Brescia, Italy ' Department of Mechanical and Industrial Engineering, Università degli Studi di Brescia, Via Branze, 38, I-25123, Brescia, Italy

Abstract: 'Consignment stock (CS)' policy is widely applied in industrial relationships today. It reduces the vendor's holding costs by stocking its inventory at a cheaper location (the buyer) and guarantees the buyer an uninterrupted supply. Studies that investigated the CS problem have adopted a classical inventory management approach. This paper modifies a model of a two-level (vendor-buyer) supply chain that operates under CS contract by applying the second law of thermodynamics so as to reduce the entropy cost of the supply chain. Mathematical models for constant commodity flow were developed for infinite and finite planning horizons. Two supply chain coordination mechanisms, namely the CS and Hill's models, were compared for the case when entropy cost is included. The results showed that the performance of the CS improved when entropy cost are considered. It was also shown to be more responsive, profitable and competitive than the other (integer-multiplier) coordination mechanism. [Received 20 January 2012; Revised 20 May 2012; Revised 13 September 2012; Accepted 13 October 2012]

Keywords: EPQ; economic production quantity; consignment stock; two-level supply chains; supply chain management; SCM; thermodynamics; entropy cost; mathematical modelling; constant commodity flow; supply chain coordination; inventory management.

DOI: 10.1504/EJIE.2014.060439

European Journal of Industrial Engineering, 2014 Vol.8 No.2, pp.244 - 272

Received: 08 May 2021
Accepted: 12 May 2021

Published online: 16 Apr 2014 *

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