Inflation and time value of money in a vendor–buyer inventory system with transportation cost and ordering cost reduction

Abstract

The article presents a single-vendor and a single-buyer integrated production inventory system with inflation and the time value of money. The main focus is on the effect of ordering cost reduction dependent on lead time and lead time reduction. Two integrated continuous review models are developed. For both cases, our objective is to minimise the total integrated system cost by simultaneously optimising the order quantity, safety factor, lead time and number of shipments. We take the transportation cost as a function of the shipment lot size and it is taken to be in an all unit-discount cost format. Thus we incorporate transportation cost explicitly into the model and develop optimal solution procedure for solving the proposed inventory system. An efficient algorithm for finding the optimal solution is developed and numerical examples are given to illustrate the model.