Effectiveness of consignment stock policy under space limitations and deterioration

Abstract

In joint economic lot-sizing problem for a two-echelon supply chain, the vendor delivers the entire production lot to the buyer by dividing it into a number of sub-batches, and ships each batch as soon as the buyer's inventory reduces to zero. On the contrary, in a consignment stocking policy, the vendor ships each sub-batch as soon as it is produced. These two generalised situations are modelled in this paper considering warehouse space limitations for the channel members (i.e. vendor and buyer) under both n-shipment and consignment stock policies where the items suffer from deterioration. Optimal results obtained by Genetic Algorithms (GAs) are compared through numerical examples to establish the superiority of one model over the other. The situations are also identified when one of the strategies would outperform another.