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Analysis of Production - Inventory Decisions in a Decentralized Supply Chain


  • Saeed Alaei
  • Masoud Behravesh
  • Nayere Karegar


Many contracts, such as buy-back policy, cost- and revenue- sharing policies, are widely applied in the literature for supply chain coordination problem. However, the additional gain from coordination may not necessarily cover the extra administrative costs incurred by applying these contracts. In this paper, a production inventory problem is considered in a two-level supply chain. The problém is formulated as a Stackelberg game. Then, the retail fixed mark-up (RFM) policy is examined in order to investigate its performance on supply chain. We apply this policy because of its lower administrative costs compared to other policies. We found that RFM policy is not capable of coordinating the channel; however, it leads to considerable improvements over the channel. For example, it is shown that it improves each member´s profit and leads to Pareto improvement over Stackelberg policy. Besides, its average efficiency is about 96% of that of integrated policy approach.

Suggested Citation

  • Saeed Alaei & Masoud Behravesh & Nayere Karegar, 2014. "Analysis of Production - Inventory Decisions in a Decentralized Supply Chain," Prague Economic Papers, University of Economics, Prague, vol. 2014(2), pages 198-216.
  • Handle: RePEc:prg:jnlpep:v:2014:y:2014:i:2:id:480:p:198-216

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    Cited by:

    1. Alexandar Grubor & Nikola Milićević & Nenad Djokic, 2016. "The Effect of Inventory Level on Product Availability and Sale," Prague Economic Papers, University of Economics, Prague, vol. 2016(2), pages 221-233.

    More about this item


    decentralized decision making; retail fixed mark-up (RFM); pricing decisions; supply chain coordination;

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • P11 - Economic Systems - - Capitalist Systems - - - Planning, Coordination, and Reform
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis


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