Abstract
In this paper, we consider an inventory system with two suppliers. A supply agreement is made with one of the suppliers, to deliver a fixed quantity Q every review period. The replenishment decisions for the other supplier are governed by a (R, S) replenishment policy; that is, when the inventory position at a review period is below the order-up-to level S, an order is placed at the second supplier such that the inventory position is raised up to S. In this paper, an algorithm is developed for the determination of the decision parameters S and Q such that the long-run expected average costs per time unit are minimized subject to a service level constraint. The costs are defined as the sum of the holding, purchasing, and ordering costs. Based on the numerical results, conclusions follow about the division of the purchase volume among the two suppliers.
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