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Impact of transportation contract on inventory systems with demand cancellation


  • Yeo, Wee Meng
  • Yuan, Xue-Ming


Supply contracts often specify the quantity of inventory for shipments where retailers are liable to pay for ordering costs if order quantity exceeds the contracted size. We analyze a periodic review system where the firm manages its demand that are reserved with a one-period leadtime together with a multi-tier supply contract. We show that the optimal inventory policy has the primary structure of “finite generalized base stock” policy whose critical numbers depend on reservation parameters. The single, multiple periods and the infinite horizon models are studied. The presence of ordering costs needs a different approach from that in Yuan and Cheung (2003) to analyze the infinite horizon model.

Suggested Citation

  • Yeo, Wee Meng & Yuan, Xue-Ming, 2012. "Impact of transportation contract on inventory systems with demand cancellation," International Journal of Production Economics, Elsevier, vol. 137(1), pages 45-54.
  • Handle: RePEc:eee:proeco:v:137:y:2012:i:1:p:45-54
    DOI: 10.1016/j.ijpe.2011.12.028

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    References listed on IDEAS

    1. Mordechai Henig & Yigal Gerchak & Ricardo Ernst & David F. Pyke, 1997. "An Inventory Model Embedded in Designing a Supply Contract," Management Science, INFORMS, vol. 43(2), pages 184-189, February.
    2. Yoichiro Fukuda, 1964. "Optimal Policies for the Inventory Problem with Negotiable Leadtime," Management Science, INFORMS, vol. 10(4), pages 690-708, July.
    3. Yeo, Wee Meng & Yuan, Xue-Ming, 2011. "Optimal inventory policy with supply uncertainty and demand cancellation," European Journal of Operational Research, Elsevier, vol. 211(1), pages 26-34, May.
    4. Chiang, Chi & Gutierrez, Genaro J., 1996. "A periodic review inventory system with two supply modes," European Journal of Operational Research, Elsevier, vol. 94(3), pages 527-547, November.
    5. Lian, Zhaotong & Deshmukh, Abhijit, 2009. "Analysis of supply contracts with quantity flexibility," European Journal of Operational Research, Elsevier, vol. 196(2), pages 526-533, July.
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    Cited by:

    1. Wang, Xuping & Ruan, Junhu & Shi, Yan, 2012. "A recovery model for combinational disruptions in logistics delivery: Considering the real-world participators," International Journal of Production Economics, Elsevier, vol. 140(1), pages 508-520.


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