A coordinated vendor–buyer system considering loss and damage claims, insurance cost and stochastic lead time

Abstract

The loss and damage of goods during shipment is a very common risk that business owners often incur as a part of daily operations. For this reason, the shipper may have to make a claim for lost or damaged items. In this study, a claim policy to improve the flow and coordination of the vendor–buyer inventory shipment process is developed. The model assumes some of the goods are lost or damaged during production and shipment. The buyer incurs an insurance cost which corresponds the market value of the item. The stochastic lead time is a function of production, transportation, in-transit and delay times. The objective of the coordinated vendor–buyer model is to minimize the total cost for both parties. An algorithm to optimize the independent and coordinated policies is created. Finally, numerical examples and sensitivity analysis are given to illustrate the theory.