An integrated vendor-buyer inventory model with order processing cost reduction

Abstract

This article develops a model for determining an optimal integrated vendor-buyer inventory policy with order processing cost reduction. Each production lot is delivered to the buyer in a number of shipments. Both the vendor and the buyer are willing to participate in order processing time reduction by applying information technologies in order to decrease their joint total cost. The order processing cost can be reduced by certain expenditures and will affect the lot-size decisions. The article derives annual integrated total cost function and shows that the annual integrated total cost function possesses some kinds of convexities. With the properties, a solution procedure is presented to determine the optimal policy.