Coordinated Replenishment Policy in an Assembly System Based on Supply-Hub

The synchronization and coordination of material flows is a key element in the supply chain management. To analyze the effects of coordinated replenishment for components, we consider an assembly system with two component-suppliers, one supply-hub and one manufacturer, under stochastic final product demand. We propose three different strategies: (i) the decentralized replenishment, (ii) the coordinated replenishment without coordinated quantity, and (iii) the coordinated replenishment policy with coordinated quantity for infinite planning horizon. We propose optimal decisions for all strategies. Results show that policy (ii) is always better than policy (i). We further identify the conditions under which the third strategy outperforms the other two. Policy (iii) is better on cost saving and service level, only when it satisfies certain conditions. Numerical studies are conducted to validate the model and to derive managerial implications.