An optimal consignment stock production and replenishment policy with controllable lead time

Document Type

Article

Publication Date

11-1-2013

Abstract

This paper considers a single-vendor and single-buyer production system in which the lead-time is controllable with an extra investment under a long-term agreement between the two trading partners. The vendor produces at a finite rate, ships the outputs in lots of equal size within a production cycle, and delays those shipments for a certain period when the buyers inventory approaches the capacity limits. Therefore, the arrival of these shipments does not lead to an increase in the buyers inventory. Meanwhile, the buyer holds the payment until the complete consumption of the products. The holding cost consists of a storage component and a financial component. A joint EOQ/EPQ model is then established under cases where the buyers unit storage holding cost might be greater or less than that of the vendor to jointly determine the number of shipments, the size of each shipment, the number of delayed shipments, and the lead time that minimise the yearly joint total expected cost (JTEC) of the system. An efficient solution procedure is provided to solve the non-linear integer optimisation model that defined the system under consideration. A method to determine the integer global optima from the real global optima is also presented. Two numerical experiments are conducted to illustrate the procedure and the results show that considering the combined effect of adopting a consignment stock policy and lead time crashing opportunities may lead to a better result than any of these two policies considered separately. © 2013 Taylor & Francis.

Publication Source (Journal or Book title)

International Journal of Production Research

First Page

6316

Last Page

6335

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