Title: Optimal lot sizing and inventory decisions in a centralised and decentralised two echelon inventory system with price dependent demand

Authors: D. Nagaraju; A. Ramakrishna Rao; S. Narayanan

Addresses: Manufacturing Division, School of Mechanical and Building Sciences, VIT University, Vellore-632014, Tamil Nadu, India ' Department of Mechanical Engineering, S.V. University College of Engineering, Tirupati-517502, Andhrapradesh, India ' VIT University, Vellore-632014, Tamil Nadu, India

Abstract: In the present-day scenario of global competitive environment, the consideration of the elasticity of demand has become one of the significant factors for designing effective supply chain coordination. In this paper, an integrated inventory model for optimal lot sizing and inventory decisions for centralised and decentralised supply chain with a single customer and single supplier considering ordering/setup costs, carrying costs and transportation costs of respective entities has been developed. The main contribution of this work is to demonstrate the implications of a dependence factor over the optimality of inventory levels, number of shipments and the total variable costs under price dependent demand which in turn is a function of replenishment quantity with dependence factor. A computer program is written in MATLAB as per the solution procedure developed to solve the model. Numerical example is devised to illustrate the optimality of decision variables, and objective function and also the sensitivity analysis is carried out.

Keywords: elasticity of demand; centralised supply chains; decentralised supply chains; dependence factor; price dependent demand; total variable costs; optimal lot sizing; inventory decisions; two echelon inventory systems; supply chain management; SCM; inventory modelling; replenishment quantity.

DOI: 10.1504/IJLSM.2015.065961

International Journal of Logistics Systems and Management, 2015 Vol.20 No.1, pp.1 - 23

Received: 25 Jun 2013
Accepted: 05 Aug 2013
Published online: 15 Apr 2015 *

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