A Bi-Level Optimization Model for Supply Chain with Incremental Discount Structure

This research aims to design a bi-level optimization model for a supply chain that integrates decentralized quantitative and qualitative decisions at strategic and tactical levels. The manufacturer, as upper-level decision-maker, offers quantity discounts to encourage customers to order more quantity. At the lower level, customers tend to obtain economies of scale by aggregating their orders through cooperative purchasing.  This is one of the first studies that investigate the model of customer expectations with the optimization model of manufacturers at the same time with real data from the supply chain in order to find the optimal solutions to the problem of the medical equipment supply chain in Iran. In addition, there have been no studies to date that consider quantitative discount strategies for the seller and customer behavior in a bi-level planning model simultaneously. The results and analyses reveal that the designed bi-level model compared to the one-level model for the customer and the manufacturer is more suited to the real world and will lead to a long-term relationship between the parties through customer participation. Research suggestions and directions for future research are also provided.