An integrated vendor-buyer deteriorating item ordering policy

This paper improves on the analysis presented in Yang and Wee (2000) for a single-vendor single-buyer integrated production-inventory model with an inventory level dependent deteriorating rate. Distinct from the former concept of average inventory level and solution method, our study proposes a significantly different approach to deal with the first production batch and an iterative method to derive the optimal values. The product is manufactured in fixed-sized batches by the vendor at a finite rate. Stock is then shipped to the buyer in equal-sized shipments during the production cycle. There are costs associated with set-up, shipment, stock deterioration and the holding of non-deteriorated stock. Our objective to minimize the integrated total cost per unit time is achieved through deriving the optimal production policy, the shipment policy and the upper bound of the delivery frequency.