Supply Chain Procurement with Inventory
and Backordering Options1
Pinar Keskinocak
Industrial and Systems Engineering
Georgia Tech
We
study the strategic behavior of a supplier and a retailer in a two period
setting, where the supplier has limited capacity, the retailer can carry
inventory, and the supplier and the retailer can backorder their respective
demand. We compare the profits of the supplier and the retailer with and
without a backordering option and show that the supplier's is usually better
off with backordering, while the retailer's profit depends on the holding cost,
backordering cost, and capacity level. In addition, we compare the supplier's
profits with and without capacity limitation and show that the supplier prefers
limited capacity.
1This is joint work with P. Griffin and K.
Charnsirisakskul.