A two-warehouse integrated inventory model with imperfect production process under stock-dependent demand and quantity discount offer

Abstract

ABSTRACTThis paper presents a single-vendor single-buyer integrated inventory model with an imperfect production process of the vendor. The demand at the buyer is dependent on the on-hand stock (both at the own and rented warehouses) and the vendor offers a quantity discount to motivate the buyer to buy more quantities. The buyer s own warehouse has a limited capacity but, if needed, he can use rented warehouse of unlimited capacity. The vendor fulfils the buyer s order quantity in multiple equal-sized shipments. The objective is to determine the vendor s shipment scheme in response to the buyer s order quantity so that the average total cost of the integrated system is minimised. For a numerical example, the optimal solution of the integrated inventory model is obtained and effects of key model-parameters on the optimal solution are examined.