Abstract This study explores a two-level vendor managed inventory model for deteriorating items facing demand dependent on stock and price, while operating under a consignment stock policy. It presents a joint vendor-buyer model that considers varying deterioration rate and preservation technology investment for both parties. The model is developed under the constraint of limited warehouse space at the buyer’s end. The study offers an analytical discourse on the model that aims to determine the optimal values for the selling price, preservation technology investment, and shipment time. An assessment is conducted to determine the optimal model for a specific business through a comparative analysis of the capacitated and uncapacitated models. The applicability and robustness of the proposed model are established through the inclusion of numerical illustration and sensitivity analysis. The proposed model is deemed suitable for industries that specializes in clothing, food and pharmaceutical products, provided that all underlying assumptions of the model are adequately met.
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