Synchronization in multi-echelon supply chain applying timing discount

Abstract

Due to the increasing emphasis on the effective management of the supply chain, synchronization and cooperation issues between suppliers and retailers in decentralized multi-echelon inventory/distribution systems have gained much attention in the recent years. In this paper, we consider coordination issues of a distribution system composed of a manufacturer, a supplier (distributor), and several retailers. The supplier outsourcing a third party offers a timing discount to multiple retailers in order to synchronize the timing of their orders with the order cycle. It is also assumed that retailers are allowed to face stock outs. In this paper, a mathematical model is developed to analyze the problem. Results show that while synchronizing the supplier and the outsourcer enhances the supply chain efficiency, offering any type of timing discount by the supplier decreases the supply chain efficiency. It is also noted that having coordination between the manufacturer and the supplier has no impact on the supplier’s profit but may decrease the retailer’s costs. It is believed that our findings provide potential and significant managerial implications in the area of supply chain coordination when these systems are decentralized.