An integrated manufacturer-distributor inventory policy for a deteriorating item with time varying demand and decreasing warehouse rental overtime

In real life, the capacity of any distributor´s warehouse is limited. Excess stock must be held in a rented warehouse whenever the capacity of the distributor´s own warehouse is insufficient. In this paper, we consider a single-manufacturer-single-distributor inventory model with deteriorating items in a two-warehouse environment and comparing to traditional one-warehouse. The rented warehouse normally has better facilities for preservation as compared with one´s own warehouse. Besides, there is an incentive offered by a rented warehouse that allows the rental fee to decrease over time. The object of this study is to develop an optimal joint economic lot size (JELS) policy from the perspectives of the manufacturer and the distributor. A simple heuristic approach with computer codes is developed to derive the optimal solution. A numerical example and sensitivity analysis are given to illustrate the results.