Integrated deteriorating inventory model when order quantity is linked to freight rate and credit period
by Nita H. Shah
International Journal of Modelling in Operations Management (IJMOM), Vol. 1, No. 2, 2010

Abstract: In this paper, a collaborative inventory model is developed when units in an inventory are subject to deterioration at a constant rate. The demand is price sensitive and production rate varies with respect to demand rate. The buyer is offered permissible delay in payments against the purchases which is dependent on the quantity ordered. It is assumed that the buyer pays the freight charge according to a weight loaded. The optimum policy is discussed to maximise the joint total profit when the permissible delay payment time and freight rate are both linked to the order quantity. The optimal retail price of the buyer, order quantity and number of shipments are decision variables. In this article, the solutions are derived for the buyer and the vendor to make decision jointly on purchase quantity, floor management, transportation logistics, shipments and payment schedule. It is observed that there is significant profit increase for the supply chain of the single-vendor and single-buyer when order quantity is linked to both permissible delay payment time and freight rate. An algorithm is developed to determine the optimal solution. In addition, numerical examples and sensitivity analysis are given to analyse the theoretical results.

Online publication date: Wed, 19-Jan-2011

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