Supply chain scheduling and coordination with dual delivery modes and inventory storage cost

We study a two-echelon supply chain scheduling problem in which a manufacturer acquires supplies from an upstream supplier and processes orders from the downstream retailers. The supply chain sells a single short-life product in a single season. We consider the scenario where the manufacturer can only accept some of the orders from the retailers due to its supplier's common production time window and its own two common production and delivery time windows. The upstream supplier processes materials and delivers the semi-finished products to the manufacturer within its time window. Then the manufacturer further processes these products to produce finished products and delivers them to the retailers within its two time windows, where one window is for production and normal delivery, and the other is for production and express delivery. Having to store the materials before processing them, the supplier incurs a storage cost, which depends on the order size and storage time. The manufacturer pays the transportation cost for delivering the finished products to the retailers. Due to double marginalization, the performance of the supply chain is sub-optimal. We model the supply chain problem as a flow shop scheduling problem with multiple common time windows. We derive some dominance properties and establish some theorems that help solve the sequencing problems for the orders and eliminate the idle time among the orders. Based on these results, we develop fast pseudo-polynomial dynamic algorithms to optimally solve the problem. We prove that the problem is NP-hard in the ordinary sense only. We develop two practically relevant and robust methods for the supply chain to achieve optimal profit-making performance through channel coordination. (C) 2011 Elsevier B.V. All rights reserved.