Optimal decision model of heavy equipment manufacturers with the right of order quantity

Author(s): Fuchang Li

In the heavy equipment industry, manufacturers are dominant in business transactions with retailers. What products manufacturers provide is what retailers can only buy and sell. In the supply chain, the manufacturer’s decisions have significant impact, it determines the efficiency and system performance of the supply chain, so study the manufacturer’s decision has important theoretical and practical significance. Most of the studies assumed that retailers decide order quantity, which is consistent with the actual situation in most industries. This paper assumes that the manufacturer decided the agents’ order quantity, which is different from the previous studies. Furthermore, the existing research didn’t study the specific form of demand function, and only assumed the demand function as the specified demand and random demand.This paper considers the impact of transport capacity flexibility on transportation costs, and assumes that heavy equipment manufacturer has the power of order quantity decision-making, supplier productivity rate is a linear function of market demand, and market demand rate is a function of price and marketing costs. Based on demand function and the transport cost function, develop heavy equipment manufacturer's wholesale price and order quantity decision model, and analyze properties of the model. The study shows that: production startup costs, production costs, fixed transportation costs and unit inventory costs have positive impact on manufacturer’s optimal wholesale price, while productivity have negative impact. Market demand rate, fixed transportation costs, production start-up costs and productivity of manufacturers have positive impact on manufacturer’s optimal order quantity, while retail price and unit inventory costs have negative impact.

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