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A Long-term Replenishment Contract under (R, S) Policy  

Kim, Yong Chan (Department of Industrial Engineering, Hanyang University)
Kim, Jong Soo (Department of Industrial Engineering, Hanyang University)
Publication Information
Journal of Korean Institute of Industrial Engineers / v.30, no.3, 2004 , pp. 241-249 More about this Journal
Abstract
By committing to a long-term replenishment contract, suppliers can mitigate the pressure to find new customers and afford to charge a discounted price to buyers seeking to lower their purchasing costs. In this paper, we develop an analytical model from buyer's perspective for the contracting process to investigate the buyer-supplier interactions. Based on the developed model, we propose an algorithm to derive optimal strategy for the contract. We consider a system with a single buyer and a supplier in a situation where the buyer's inventory is controlled by (R, S) policy under VMI setting. According to the contract, the supplier should replenish the buyer's inventory up to a fixed level every R times during a specified period. The buyer purchases any deficient amount from a spot market at a higher price. We show by computational experiment that our proposed algorithm finds the global optimum solution.
Keywords
long-term contract; capacity reservation; (R, S) policy; spot market;
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