Annual total cost for case i

•TP_bi  Annual total profit for case i

•    Extra profit sharing for case 3 as compared to       case 1 (=TPb3-TPb1).

Vendor’s parameters

•p    Replenishment rate

•C_v    Setup cost, $ per batch cycle

•C_vb    Fixed cost to process each buyer’s order

•P_v     Vendor’s unit cost

•F_v     Inventory carrying cost percentage per year and    per dollar

•TC_vi   Annual total cost for case i

•TP_vi   Annual total profit for case i

•      Extra profit sharing for case 3 as compared to case 1 (=TPv3-TPv1).

Parameters for vendor and buyer

•a  The demand rate scale parameter

•b  The demand rate price-sensitive parameter

•d_i  Annual price-sensitive demand rate for case i,   ---------where

•TC_i  Annual total cost (TC_vi & TC_bi) for case i

•TP_i  Annual total profit (TP_vi & TP_bi) for case i

•     Negotiation factor between the vendor and the buyer

•PTPI_i Percentage of total profit increase for case i ------------with respect to case 1

Vendor’s average inventory level

Buyer’s total profit

Vendor’s total profit

Joint total profit

Numerical example

Case 3 is better than Case 1 10%, and both vendor and buyer get benefit

Concluding remarks (1/3)

•A collaborative pricing and replenishment policy is developed in a integrated inventory system.

•The buyer-vendor collaboration results in a significant total profit increase (3.6%-54.3%).

•The total profit increase can be shared using a negotiation factor, thus results in a feasible win-win strategy.

Concluding remarks (2/3)

•The reasons why there exists an increase in total profit from collaboration are as follows:

–lower unit price to the end consumer, resulting in increasing demand,

–higher demand rate increases the total profit,

–larger lot size reduces the buyer’s purchase price,

–larger annual production quantity decreases unit fixed production cost.

Concluding remarks (3/3)

•More significant for collaboration

–When the price-sensitive parameter, the holding cost, and the ordering cost increase,

–when the scale parameter, the negotiation factor and the replenishment rate decrease,

Q &A

•Thanks for your kind attention