An Efficient Supplier-Buyer Partnership for Hi-Tech Industry

Abstract

Due to rapid technological innovation and global competitiveness, the selling price and the demand rate of hi-tech industries usually decline significantly with time. In some industries such as computers, communication and consumer products, component cost and product prices can decrease even at 1% per week. This study develops a deteriorating inventory model for product experiencing continuous decrease in unit price. We proposes an inventory model with efficient replenishment policy for a single supplier-buyer partnership in which the buyer considers multiple JIT deliveries considering the buyerpsilas EOQ ordering strategy. The market possesses characters that the selling price decreases exponentially over time, while the customer demand increases linearly with the selling price down. Besides considering short life cycle, a single production-setup of the supplier is allowed and the objective of this model is to maximize the supplierpsilas profit during a finite planning horizon. A simple heuristic algorithm is developed to derive the optimal solution for the model. Numerical examples and sensitivity analyses are done to validate the model.