Effect of Delivery Lead Time on Production Policy in a Two-Tiered Supply Chain with Constrained Supply

In this research we investigate suppliers’ production policy in a two-tiered supply chain. Most supply chains and industries have production capacities that exceed the market needs. According to the Federal Reserve... [ view full abstract ]

In this research we investigate suppliers’ production policy in a two-tiered supply chain. Most supply chains and industries have production capacities that exceed the market needs. According to the Federal Reserve (http://www.federalreserve.gov/releases/g17/Current/), the average capacity utilization in the industrial sector is 77.5% in September 2015. This means that a typical supplier chooses not to utilize fully his excessive capacity. If he did, this would result in overproduction, buildup of inventories and excessive holding costs. In this research we investigate the question what production policy should be adopted by a supplier to minimize his inventory related costs (holding and backordering), and what effect does this policy have on retailer’s product availability.