An optimal two-level supply chain model for Small- and Medium-sized Enterprises (SMEs) considering rework for new products and price-dependent demands

Abstract

With the advent of new technologies, several factors such as globalization of markets, customers' different needs, and increasingly fierce economic competition have encouraged Small- and Medium-sized Enterprises (SMEs) to improve their engagement with suppliers and to involve themselves with cost management practices in order to survive. SMEs clearly need to focus on the interests of the entire supply chain by enacting win-win policies. In this regard, the present study investigated a two-level inventory model featuring a manufacturer and a buyer in the competitive market with the policy of producing new products. The proposed model took into account imperfect and low-quality products and their capacities for rework. In other words, due to the competitive nature of the market, any increase in prices would lead to a decrease in demand. The mathematical model was proposed in two scenarios: one with the possibility of shortage and one without it. The objective function of the mathematical model revolves around maximizing the total profit of the supply chain considering both independent and joint optimization by the supply chain members. A new algorithm was then proposed to solve the mathematical model whose applicability was evaluated by using a numerical example in the analysis software MATLAB as the input. The results were then analyzed and discussed based on a sensitivity analysis approach.