Management Science and Financial Engineering

The Korean Operations Research and Management Science Society (한국경영과학회)
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Designing a Coordinated Setup Cost Reduction Program of a Supply Chain

  • Lee, Chang-Hwan (Department of Operation Management, School of Business Administration, Ajou University) ;
  • Pae, Jae-H. (Department of Marketing, College of Business Administration, Ewha Womans University)
  • Published : 2007.11.30
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Abstract

This paper contributes by incorporating works addressing supply chain coordination and investing in setup reduction program. Consider a two-echelon, EOQ-like inventory system consisting of a supplier and a buyer. We assume that both the supplier and the buyer can invest in setup cost reduction programs in order to benefit from small order sizes. However, the costs of investing in setup cost reduction programs are different for the two parties, leading to mismatches in individually optimal setup costs and order cycle times. We propose a supply chain coordination contract that makes use of quantity discount as an incentive transfer scheme for supply chain coordination.

Keywords

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