Ritvirool and Ferrell

Ritvirool and Ferrell - Optimal inventory policies for...

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Optimal inventory policies for single-vendor, single-buyer systems with quality considerations Apichai Ritvirool Department of Industrial Engineering Faculty of Engineering Naresuan University Phitsanulok, 65000 Thailand William G. Ferrell, Jr.* Department of Industrial Engineering Clemson University Box 340920 Clemson, SC 29634-0920 *Corresponding author (fwillia@ces.clemson.edu)
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Abstract This research focuses on modeling a single-vendor, single-buyer purchasing system in which the buyer uses a ( Q, r ) inventory policy and the vendor determines the production lot size on a make- to-order basis. A cost based model is used to determine the optimal order quantity and reorder point as well as the safety stock levels for both the vendor and buyer. Moreover, the cost of quality is included by assuming that the vendor’s inventory contains defective items. A numerical example is used to illustrate how the integrated inventory models can be applied to actual systems and the types of information that can be obtained relative to implementation. Keywords : inventory control, integrated model, quality
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1.0 Introduction Supply chain management is a contemporary concept that involves managing and controlling the highly integrated set of processes required to move raw materials from points of supply to delivery of finished goods to customers. Justification for expending the time, effort, and resources to design and implement such systems is frequently based on a common sense argument that substantial savings will naturally occur. In this research, we investigate the simple case of a single buyer purchasing one product type from a single vendor to see if a mathematical model will support common sense. Now this work is certainly not the first in this area. Thomas and Griffin [1] showed that the coordinated design and control of all components in a supply chain provides goods and services to the customer at low cost and high service levels. They provide an excellent review of the literature dealing with the coordination of the three main stages in the supply chain, procurement, production, and distribution, and the three categories of operational coordination: buyer-vendor, production-distribution, and inventory-distribution coordination. Within the overall framework of buyer-vendor model there are a number of excellent manuscripts. For example, Goyal [2] initially developed an integrated inventory model that included a single customer and a single supplier in a situation where there were no stock outs and no lead times. Banajee [3] incorporated a finite production rate into the Joint Economic-Lot-Size (JELS) model under deterministic conditions and had the purchaser apply the Economic-Order-Quantity (EOQ) policy while the vendor used a lot-for-lot policy with instantaneously delivery. Goyal [4] subsequently relaxed the assumption of lot-for-lot policy of the vendor and claimed this model provides a lower or equal joint total relevant cost compared to the JELS model. Goyal and Gupta [5] reviewed the literature dealing with the interaction between the buyer and vendor.
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Ritvirool and Ferrell - Optimal inventory policies for...

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