Production rate and lot-size dependent lead time reduction strategies in a supply chain model with stochastic demand, controllable setup cost and trade-credit financing

Abstract

This study explores simultaneous reduction strategies of lead time and setup cost in a two-stage supply chain model under trade-credit financing. Lead time depends on a variable production rate and lot size. It consists of setup, production, and transportation time which are shortened to reduce lead time. Although double safety factors are considered to avoid stock-out; but still backorders take place as the demand during the lead time is stochastic. Setup cost is reduced by including an extra investment cost. In addition, the vendor offers a fixed credit period to the buyer to settle the account. The objective is to minimize the integrated expected total cost and optimize the order quantity, number of deliveries, setup and transportation time, setup cost, safety factor for the first batch, and the production rate. A multi-variable optimization technique is used for these purposes. Furthermore, a numerical example together with managerial insights is provided for the establishment and applicability of the proposed model. The numerical results show that the introduction of setup cost reduction and trade-credit financing along with lead time reduction is more beneficial by means of integrated expected total cost reduction.