A Cooperative Inventory Model for Vendor-Buyer System with Raw Material Decisions, Deterministic Lead Time and Stochastic Demand

Abstract

This study investigates integrated inventory problem for a two-stage supply chain consisting of a single vendor and single buyer. We develop a model for coordinating the replenishment decisions for raw material procurement, production, and shipment under stochastic environment. For attaining the model objective, we develop an algorithm to determine the optimal shipment-sized, safety factor, number of shipment and number of raw material replenishment based on minimum expected total cost. Furthermore, numerical examples are given to illustrate the effect of primary parameters on the lot size, safety factor, number of batches and expected total cost. The results from numerical examples shows that making production-inventory decisions jointly can reduces expected total cost comparing with making decisions individually.

Keywords: Supply chain, replenishment decision, raw material procurement, production, shipment, stochastic.