Competitive Stock Replenishment Problem in a Two-Echelon Supply Chain with Competing Retailers

Abstract

This paper studies a two-echelon supply chain, with a warehouse and n retailers. The entire supply chain is characterized by several parameters including demand variance, inventory holding cost and backorder penalty cost. We investigate replenishment strategies of this system under decentralized and centralized control. We consider horizontal information sharing between these retailers when the shared information is valuable for stabilization of the system. It is shown that unique Nash equilibrium of the competitive retailers system exists. We also propose demand-depended and equational coordination schemes. These three coordination schemes are compared numerically, the result of the simulation show that penalty cost and holding cost effect replenishment in Nash equilibrium greatly, and although the set of strategies under profit oriented Nash equilibrium balance the supply chain system, it increases system cost.