A vendor-buyer supply chain model for time-dependent deteriorating item with preservation technology investment

Abstract

This paper considers a two-echelon supply chain model with a single-vendor and a single-buyer who sells a single product which is deteriorating in nature. The deterioration rate increases with time and it also depends on the product's expiration date. The buyer invests capital to preserve the item and reduce deterioration cost. The demand at the buyer's end depends on the selling price. The vendor's production process is not perfectly reliable; it may shift from an in-control state to an out-of-control state at any random time during a production run and produce some defective (non-conforming) items. The vendor follows a lot-for-lot policy for replenishment made to the buyer. The average profit of the supply chain is derived and an algorithm for finding the optimal solution is developed. A numerical example is provided to validate the proposed model and examine the effectiveness of preservation technology investment. Sensitivity analysis is carried out to investigate the impacts of key model-parameters on optimal decisions.