CAPACITY ALLOCATION AND INVENTORY POLICY IN A DISTRIBUTION SYSTEM

Yue Dai (), Xiuli Chao (), Shu-Cherng Fang () and Henry L. W. Nuttle ()
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Yue Dai: School of Management, Fudan University, Shanghai 200433, China
Xiuli Chao: Industrial Engineering and Operations Research, North Carolina State University, Raleigh, NC 27695-7906, USA
Shu-Cherng Fang: Industrial Engineering and Operations Research, North Carolina State University, Raleigh, NC 27695-7906, USA
Henry L. W. Nuttle: Industrial Engineering and Operations Research, North Carolina State University, Raleigh, NC 27695-7906, USA

Asia-Pacific Journal of Operational Research (APJOR), 2006, vol. 23, issue 04, 543-571

Abstract: We consider a single-period distribution system with one supplier and two retailers. The supplier may have infinite or finite capacity. The demand at each retailer is random. When a stockout occurs at one retailer the customer may go to the other retailer. We study both the decentralized and centralized inventory control problems. For the decentralized problem we show that a unique Nash equilibrium exists when the capacity at the supplier is infinite. However, when the capacity is finite, only under certain conditions does the Nash equilibrium exist. For centralized inventory control we obtain the optimal allocation that maximizes the expected profit of the entire supply chain. For the case of decentralized controls we also design channel coordination mechanisms, i.e., a decentralized cost structure resulting in a Nash equilibrium with chain-wide profits equal to those achieved under a fully centralized system. We compare the performance of two retailers in the decentralized and centralized controls and analyze the impact of channel coordination on the whole supply chain.

Keywords: Game theory; supply chain management; channel coordination; capacity allocation problem (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (4)

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DOI: 10.1142/S0217595906001054

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