A Coordination Model Under an Order-Up-To Policy

A logistics system that involves a supplier who produces and delivers a single product and a buyer who receives and sells the product to the final customers was analyzed. A mathematical model was developed to describe the behavior of the system and to derive the optimal cycle length and order-up-to levels for the two parties. An analysis of the obtained results revealed that the methods were able to determine the optimal control parameters for each party in a short time frame. A coordination mechanism based on the optimal policies was ultimately proposed so that each party benefits more than if they use their own optimal control policy.