Achieving Supply Chain Coordination Through Lot Size Based Discount

Abstract

A generic mathematical model is developed for a two level supply chain through lot size based discount to achieve supply chain coordination. The model considers a single product with probabilistic demand. It accounts total supply chain cost which entails product cost, inventory holding cost, ordering cost and stock-out cost considering the maximum allowable supply chain inventory. Genetic algorithm is used for determining the optimum levels of ordering quantity, supply chain savings, and discount percentage (i.e. an upper member should offer to a lower member of the supply chain) to enhance supply chain profit. A case situation is elucidated to demonstrate the salient features of the proposed model.