A retailer sells 5000 units of a product per month at a steady rate. The product is bought from the supplier at a wholesale price of $2.50 per unit. The administrative and logistical costs of placing and receiving an order amounts to $100. The annual holding cost rate at the retailer is 20%. The supplier can produce the product at a rate of 20000 units per month with a product cost of $1.20. The supplier has a fixed cost of $300 per order for setting up production. Annual holding cost rate at the supplier is 25%.
Without cooperation, what is the optimal replenishment policy for the retailer?
Without cooperation, what is the optimal replenishment policy for the supplier?
What is the optimal integrated lot size? What are the resulting ordering and holding costs for each player?