A serial inventory system with supplier selection and order quantity allocation

Given the prevalence of both supplier selection and inventory control problems in supply chain management, this article addresses these problems simultaneously by developing a mathematical model for a serial system. This model determines an optimal inventory policy that coordinates the different stages of the system while properly allocating orders to selected suppliers in Stage 1. A lower bound on the optimal total cost per time unit is obtained and a 98% effective power-of-two inventory policy is derived for the system under consideration. This policy is advantageous since it is simple to compute and yields near optimal solutions.