A fuzzy newsvendor approach to supply chain coordination

In the absence of a clear command and control structure, a key challenge in supply chain management is the coordination and alignment of supply chain members who pursue divergent and often conflicting goals. The newsvenclor model is typically used as a framework to quantify the cost of misalignment and to assess the impact of various coordination initiatives. The application of the newsvenclor framework. however, requires the specification of some probability distribution for the sources of uncertainty, and in particular, for the market demand. The specification of an adequate demand distribution becomes difficult in the absence of statistical data. We therefore consider a fuzzy approach to the newsvenclor problem. We use several fuzzy parameters in the model for the demand, the wholesale price, and the market sales price. We solve the fuzzy newsvenclor problem to study three coordination policies: quantity discounts, profit sharing, and buyback. For each coordination policy, the optimal order quantity of the retailer is computed. The possible profits of the members in the supply chain are calculated with minimum sharing of private information. We further extend the fuzzy newsvenclor model to a setting with a single manufacturer and multiple retailers under the assumption of ample capacity for the manufacturer. Detailed numerical examples are also provided. (C) 2009 Elsevier B.V. All rights reserved.