Stability contracts between supplier and retailer: a new lot sizing model

This work explores the relationship between decision-makers in a company and their suppliers using stability contracts. This relationship can be modelled as a capacitated multi-machine lot sizing problem with minimum order quantity and dynamic time windows, where orders are represented by production levels. Both the amount and the frequency of orders are constrained, the first by upper and lower bounding and the second by dynamic time windows. A mathematical model is provided and an experimental analysis is conducted. A cost study highlights that using proper stability contracts in certain condition can reduce the storage cost of the retailer, improving the whole supply chain efficiency. Conclusions are given leading to insight for decision-makers and contract designers.