Integrated lot-delivery supplier-buyer inventory model with demand-driven production rate for exponentially deteriorating items

Abstract

Business focus has been shifted to the development of management of supply chains. The objective of supply chain management is to optimize the performance of the whole supply chain instead of independent optimization of individual parties. Lot-delivery is a common mode of transferring the concerned product from the supplier(s) to the buyer(s). Since Ghare and Schrader (1963)'s pioneering work, many researchers have presented inventory models on deteriorating items. However, there have been much fewer integrated lot-delivery models than EOQ and EPQ models of deteriorating items in literature. This research investigates integrated lot-delivery models for optimizing the supply chain of exponentially deteriorating items.In predetermined production rate models, significant proportions of stock are built well before shipments because production rates are usually much higher than demand rates. Therefore, high inventory holding costs and deterioration costs are incurred. In addition, utilization of the production facilities is low. In this research, a demand-driven production rate continuous production model is proposed. In this model, the production rate is related to the delivery interval and is found by optimizing the total cost of the system. By having a lower production rate and a shorter delivery interval, the model can achieve a significant reduction in the total system cost per unit time, under conditions that are found by studying the effect of varying production rate on the total cost. Part of the cost saving can be allocated to finance additional resources for maintenance of the equipment. This model also addresses the operational issues by minimizing idleness of production facilities and facilitating labour planning. There are two extensions of the proposed model. In some of the literature, researchers have presented EOQ models for deteriorating items with a non-deteriorating period. The proposed model has been extended to include a non-deteriorating period for the item and the effect of a finite production rate and a non-deteriorating period on the system is investigated. In the literature of inventory models, cost parameters have been assumed to be independent of production rate. As the proposed demand-driven production rate model uses a much lower production rate than usual predetermined production rates, the proposed model is extended to investigate a scenario in which some cost parameters increase when production rate decreases. Chan and Kingman (2005, 2007) presented a synchronized model for a single-vendor multiple-buyer supply chain. The synchronized model performs better than the common order cycle model developed by Banerjee and Banerjee (1994). In this research, the synchronized model is extended for supply chains of exponentially deteriorating items. It has been found that the model has a better performance than the best costs from genetic algorithm and the optimal solutions of the common cycle approach. In view of increasing environmental concerns, a maximum deterioration constraint has been incorporated in the extended model in which the least cost solution that meets the constraint is found.Utilization of production facilities is low in predetermined production rate models due to high production rates. In this research, a model of producing two products on the same production line for single buyer (or two buyers, one for each product) is presented. Two heuristics have been proposed: one considers time as a continuous variable, and the other is modified from the synchronized model.