Abstract
This paper is concerned with the problem of lost sales reduction in an integrated vendor-buyer supply chain model with stochastic lead time. We consider that lost sales rate can be reduced through further investment. By framing the model, we observe that a significant amount of savings can be achieved to increase the competitive edge. The objective is to derive the optimal production and shipment policy, and the optimal investment strategy in reducing lost sales for the integrated vendor-buyer system with partial backordering under stochastic lead time. A computer code using the software Mathematica 7 is developed to derive the optimal solution. Furthermore, the effects of the parameters associated with the model are also studied. Finally, we provide numerical examples to illustrate the results.
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