Coordinated Vendor-Buyer Supply Chain Model With Transportation Cost Under Diesel Price Uncertainty

This project focuses on supply chain coordination model between vendor and buyer with emphasis on transportation cost. The objective is to minimize the supply chain cost which comprises of order cost, setup cost, vendor holding, buyer holding, shortage cost and finally transportation cost. The model developed in this project determines the optimal order size, number of shipments, and reorder point while simultaneously accounting for the uncertainties in diesel price. Uncertainty in price of diesel is also developed using mean reverting process. To date, the impacts diesel price uncertainty and transportation cost in the supply chain policy is not very well known. This report provides an analysis by altering the multiple variables impacting transportation costs such as the truck type, feature, environmental condition, route, weight and driving style. This analysis demonstrates how changes in truck variables impact the expected total cost thereby making it extremely critical for corporations to mitigate costs strategically.