Optimal vendor-buyer cooperative inventory policy for order size dependent transportation cost

Document Type

Conference Proceeding

Publication Date

1-1-2018

Abstract

In a vendor-buyer cooperative inventory system several factors including planned shortage, controlled sales price, shipment size and frequency affect the total profit. Though a larger order size reduces the number of shipments, it conversely increases the lead time and transportation cost. On the other hand, planned shortage of items reduces the buyer's storage cost; at the same time it increases the backorder cost for the buyer. By controlling sales price, the buyer can affect the rate of market demand which eventually affects the total profit. The problem is to find an appropriate sales price, backorder quantity, ordering size and frequency that lead to maximum joint total profit. Considering all of these aspects for an imperfect production system, this paper presents two joint total profit models for two different cases depending on the location of the quality inspection. A search approach, based on random walk with random restart method, is used to solve both models for obtaining suboptimal solutions. A numerical instance is presented to illustrate the solution approach. The numerical instance presents that the solution noticeably differs when quality inspection is done by the buyer instead of vendor.

Publication Source (Journal or Book title)

Proceedings of the International Conference on Industrial Engineering and Operations Management

First Page

799

Last Page

807

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