An integrated inventory model involving manufacturing setup cost reduction in compound Poisson process
The collaboration of vendor and buyer is one of the key factors for successful supply chain management. The most common strategy for a cooperative system is to propose an integrated replenishment plan. Almost all inventory models assume that setup cost is deterministic and is not subject
to control. However, in many practical situations, setup cost can be reduced at an added investment. The paper assumes that setup cost can be reduced at an added investment and shortage is permitted during the lead time. This article relaxes the assumption that the demand of lead time is deterministic
and is assumed to be a compound Poisson process. A model is derived to determine an optimal integrated inventory policy with controllable setup cost. The expected annual integrated total cost function is derived and a solution procedure is established to find out the optimal solution. Finally,
a numerical example is provided to illustrate the solution procedure.
Keywords: compound Poisson process; economic order quantity; setup cost
Document Type: Research Article
Affiliations: 1: Department of Industrial Engineering and Management, Cheng Shiu University, Kaohsiung, Taiwan, ROC 2: Department of Decision Sciences & M.I.S., John Molson School of Business, Concordia University, 1455 De Maisonneuve Blvd. West, Montreal Quebec, H3G 1M8, Canada
Publication date: 15 February 2011
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