ABSTRACT In this paper, we present an integrated optimization model for simultaneously addressing the problem of optimizing delivery quantities and determining optimal production lot sizes in a consignment stock partnership between vendors and buyers. The objective is to minimize the total cost of ordering, holding, setup, and transportation in a two-echelon supply chain. We propose three coordination policies to solve this problem. The first policy involves each vendor producing and delivering a batch to all customers in equal and proportional quantities to their demand. The second policy involves vendors only delivering the product upon receiving an order. The third policy involves each vendor making deliveries to all customers, but not necessarily at the same time. Additionally, a fourth model integrating the previous three policies is proposed. Numerical examples demonstrate the benefits of this integrated model, while sensitivity analyses highlight the impact of key parameters on the total cost.
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