Production-Distribution Planning for a Two-Echelon Decentralized Supply Chain Coordinated with Revenue Sharing Mechanisms

Abstract: This study presents a model for multi-product, multi-period production-distribution planning with revenue sharing for a two-echelon decentralized supply chain. The model incorporates a revenue sharing mechanism that is used to coordinate the two echelons and considers the distributor's ordering behavior under uncertain demands which is formulated by a single-period news-vendor problem. Since the model is a mixed-integer, nonlinear programming problem, a heuristic is proposed. The heuristic determines not only the production quantities and product flows for the supply chain network but also the wholesale prices between the two echelons. The proposed heuristic is evaluated against the optimal solution values and the computation times obtained by solving the model as a mixed-integer, nonlinear programming problem. The experiments employ the solution gap ratio and time-saving ratio to measure the solution quality and the computation efficiency for the proposed heuristic. The average solution gap was 3.564%. The maximum average time-saving ratio was 870.651 at the large supply chain environment. The results show that the proposed heuristic is effective and efficient in terms of solution quality and computation time.