Abstract
This paper develops a collaborative business model for imperfect process with setup cost and lead time reductions. We propose a simple solution procedure to derive the optimal order quantity, lead time, delivery frequency and setup cost. Shortage during the lead time is assumed to be partially backordered. Numerical examples are carried out to show how the proposed model can result in a substantial cost savings over the traditional model.
Highlights
Strategic business alliance is a formalized type of collaborative relationship between a vendor and a buyer in a supply chain
We find that setup cost, lead time and ordering cost reductions simultaneously decrease the cost of both the vendor and the buyer
Independent decision made by a buyer or a vendor usually does not result in global optimum
Summary
Strategic business alliance is a formalized type of collaborative relationship between a vendor and a buyer in a supply chain. (Nasri, Paknejad, & Affisco, 1991) extended Banerjee’s model to investigate the impact of investing in setup cost and ordering cost reductions simultaneously Their results indicated that both the vendor and the buyer can realize significant savings. (Salameh & Jaber, 2000) examined a joint EOQ lot sizing and inspection policy with imperfect quality They assumed 100% screening and all poor-quality items were sold at the end of the screening process. (Goyal, Huang, & Chen, 2003; Huang, 2004) extended Salameh and Jaber’s model and proposed an integrated vendor-buyer cooperative inventory model for items with imperfect quality.
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