Partnership and negotiation support by joint optimal ordering/setup policies for JIT

Abstract

Several studies have focused on the qualitative aspects of establishing and negotiating buyer–supplier partnerships, including Just-In-Time (JIT) supply, but few quantitative models and investigations are available in this area. We explore the two typical cases: supplier's dominance, with large production lot sizes and shipment sizes and buyer's dominance with small, frequent shipments. In each case, we compare the optimal shipment policy of the dominant party to the joint optimal policy. The savings or loss for each party and the total system cost improvements are computed which provide the quantitative support for negotiation, compromise, and compensation. We extend the quantitative results for different JIT scenarios. We assume that the buyer's order is delivered in n shipments of size q. The supplier's production lot size can also be an integer multiple of the shipment size, Q S= mq, and m can be different from n. Only the cases of m=1 and m= n were examined before. This extension can result in substantial savings. We analyze under which circumstances does the saving warrant the more complex setup policy and in which cases is a simpler policy's cost close to optimum.