Impact of Lead-time Decision in a Decentralized Supply Chain under Price and Lead-time Sensitive Demand(Theory and Methodology)

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This paper studies the effect of lead-time decision on the performance of a decentralized supply chain that consists of one supplier, one retailer, and wherein the demand is sensitive to both retail price and lead-time. Three different scenarios based on lead-time decision making are studied and compared analytically and numerically. The lead-time is decided by the retailer and the supplier in the first and second scenarios, respectively, and it is centralized in the third scenario. The modeling considers holding and tardiness costs incurred by the difference between promised and realized delivery lead-times. The supply chain is analyzed using a power distribution function. This distribution is a parametric function that models the lead-time in general environment and has the same properties as exponential distribution for specific parameters. The optimal decision variables and expected profits are characterized and compared for the three scenarios. The relative decrease of total expected profits in the decentralized chains from that in the centralized model is observed and discussed. Furthermore, the effect of own price and lead-time sensitivity demand factors are studied numerically.
2011-08-15