A Coordinated Single-Vendor Single-Buyer Inventory System with Deterioration and Freight Discounts

Abstract

This chapter deals with a coordinated inventory model by considering supply chain of two stage, single-vendor and single-buyer. An equally sized shipment from vendor to buyer is conducted, and the buyer’s rate of market demand is taken as a constant. Also, in the model, the concept of cost associated with freight discount is undertaken, and formulations are done on the basis of all-weight freight discount model and incremental freight discount model. In this chapter, an estimation of the optimal values of replenishment cycle length, lot size by minimizing the buyer’s total cost, vendor’s total cost as well as total cost of the supply chain inventory system dealing deteriorating items are considered. The increase in the number of production batch lot size factor and number of shipments from the vendor to the buyer will lead to decrease the total cost. Numerical examples are provided to illustrate the theoretical results and convexity of total cost is established. Managerial observations are outlined using sensitivity analysis. The result analysis demonstrates that on imposing freight discount into inventory model results in significant reduction on total cost. Finally, it can be concluded that freight discount model associated with incremental concept gives substantial effects on minimizing the objective of system’s aggregate inventory cost.