In the fashion industry, a flexible backup agreement contract allows the retailer to order a partial amount from the backup quantity to allay the risk of uncertain market demand. However, under such a contract, the manufacturer faces the risk of bearing a huge leftover if the quantity realized by the retailer in backup is small. Accordingly, the present study considers a modified backup agreement in which the manufacturer is permitted to urgently purchase substitute products to satisfy the backup order from a third-party supplier, but at a unit purchase cost greater than the original unit manufacturing cost. The corresponding expected total profit function for the manufacturer is established and shown to be concave. The profit function is used to explore various useful properties for determining the optimal production lot size. In addition, an illustrated numerical example is provided to analyze the impact of the backup contract terms on the optimal production lot size and manufacturer’s profit.
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DOI : 10.1051/ro/2019047
Mots-clés : Fashion supply chain, backup contract, economic production quantity
@article{RO_2020__54_5_1309_0,
author = {Tsai, Wen-Chin and Wang, Chih-Hsiung},
title = {Optimal production lot size under backup agreement allowing substitute products},
journal = {RAIRO - Operations Research - Recherche Op\'erationnelle},
pages = {1309--1326},
publisher = {EDP-Sciences},
volume = {54},
number = {5},
year = {2020},
doi = {10.1051/ro/2019047},
mrnumber = {4111659},
language = {en},
url = {http://archive.numdam.org/articles/10.1051/ro/2019047/}
}
TY - JOUR AU - Tsai, Wen-Chin AU - Wang, Chih-Hsiung TI - Optimal production lot size under backup agreement allowing substitute products JO - RAIRO - Operations Research - Recherche Opérationnelle PY - 2020 SP - 1309 EP - 1326 VL - 54 IS - 5 PB - EDP-Sciences UR - http://archive.numdam.org/articles/10.1051/ro/2019047/ DO - 10.1051/ro/2019047 LA - en ID - RO_2020__54_5_1309_0 ER -
%0 Journal Article %A Tsai, Wen-Chin %A Wang, Chih-Hsiung %T Optimal production lot size under backup agreement allowing substitute products %J RAIRO - Operations Research - Recherche Opérationnelle %D 2020 %P 1309-1326 %V 54 %N 5 %I EDP-Sciences %U http://archive.numdam.org/articles/10.1051/ro/2019047/ %R 10.1051/ro/2019047 %G en %F RO_2020__54_5_1309_0
Tsai, Wen-Chin; Wang, Chih-Hsiung. Optimal production lot size under backup agreement allowing substitute products. RAIRO - Operations Research - Recherche Opérationnelle, Tome 54 (2020) no. 5, pp. 1309-1326. doi : 10.1051/ro/2019047. http://archive.numdam.org/articles/10.1051/ro/2019047/
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