A VENDOR MANAGED TWO-ECHELON INVENTORY SYSTEM FOR AN INTEGRATED PRODUCTION PROCUREMENT CASE

Abstract

Joint economic lot size models for purchasers and vendors are more economical than when considering their inventory problems independently. It requires vendors to have a complete knowledge of their purchaser's demands. In such a situation, the vendor shall manage the supply with comparatively more inventory at its end. The operational cost can further decrease provided supply is in sub-batches and logistics cost does not increase substantially. However, determining the right size for these sub-batches becomes an issue. Sub-batches of varying size may cause planning and control problems, but supply in sub-batches of uniform size will not. In this paper, joint economic lot size models are presented for the two supply situations, namely staggered supply and uniform supply. Cases are employed that describe the inventory situation of a single vendor supplying an item to a manufacturer that is further processed before it is supplied to the end-user. Using illustrative examples, the comparative advantages of the uniform sub-batch supply over the staggered alternative are investigated. From the analysis, uniform supply models are found to be comparatively more beneficial and robust than the staggered sub-batch supply.