Production and Inventory Decisions in a Multi-Stage Supply Chain with Transportation Cost

In this paper we consider the case of a three- stage supply where a firm can supply many customers. This supply chain system involves suppliers, manufactures, and retailers. Production and inventory decisions are made at the suppliers and manufactures levels. The production rates for the suppliers and manufactures are assumed finite. In addition the demand for each firm is assumed to be known. The problem is to coordinate production, inventory and transportation decisions across the supply chain so that the total cost of the system is minimized. For this purpose, we incorporate transportation cost explicitly into the model and describe optimal solution procedure for solving the model.