An integrated JIT inventory model

Abstract

Derives an integrated inventory replenishment model for a buyer that buys a single product from a vendor that manufactures this item and delivers it to the former in fixed quantities. It is assumed that both parties co‐operate and exchange information, including cost data, which is not unheard of in a JIT based partnering relationship, in deriving a jointly optimal inventory replenishment policy, rather than individually deriving their own independent policies. Such an approach can result in significant savings in the joint total relevant cost incurred by both parties. These savings may be shared in some fair and equitable manner, so that, from an economic standpoint, both the buyer and the vendor derive substantive benefits from such an integrated, jointly optimal policy. Illustrates the model and the related concepts through a simple numerical example.