Optimal consignment stocking policy for a vendor-buyer supply chain system with periodic inventory audit and in-transit holding cost

Abstract

The research presents an integrated inventory model for a single-vendor-single-buyer consignment stock policy where demand rate and lead-time are constant. The vendor controls the buyer's warehouse, whereas the stock of all finished goods is owned by the vendor. The vendor delivers finished goods to the buyer at a fixed lot size. Shortage is not allowed by controlling the production rate greater than the demand rate. The problem is formulated as a nonlinear cost model which is minimised to arrive at an optimal policy to cooperatively operate the joint contract. An iterative search approach is followed to obtain an optimal value of order quantity and number of shipments. Computational results are presented for a practical example and some empirical studies. The model presented here are applicable in numerous supply chain systems including retail business, assembly and production houses, where two parties are tied together for achieving their common goal.