A Compensation-Based Replenishment Model for Deteriorating Items via Simulated Annealing Method

In a competitive market environment, business seeks to reduce cost by using strategic integration. This study derives an inventory replenishment model for a two-echelon supply chain in which the retailer is a leader of product price and the supplier is a price-follower. We consider that market demand is affected by its price and the product has a deterioration rate following Weibull distribution. A compensation model is developed to coordinate this two-echelon supply chain system to increase the product lifecycle and profits of the individuals as well as the system. Due to the complexity of the non-linear problems, it is not possible to find the global optimum analytically. This study maximizes the total profit of the supplier and buyer by a soft computing method, simulated annealing (SA). Numerical examples are given to justify the proposed model.