An integrated inventory model involving manufacturing setup cost reduction in compound Poisson process

• Published in: International journal of production research Vol. 49; no. 4; pp. 1219 - 1228
• Main Authors: Huang, Chao-Kuei, Cheng, T.L., Kao, T.C., Goyal, S.K.
• Format: Journal Article
• Language: English
• Published: Abingdon Taylor & Francis Group 15.02.2011; Taylor & Francis; Taylor & Francis LLC
• Subjects: Applied sciences; compound Poisson process; Cost engineering; Cost function; Durchlaufzeit; economic order quantity; Exact sciences and technology; Financing; Inventories; Inventory control, production control. Distribution; Investment; Kostenmanagement; Lagerhaltungsmodell; Lead time; Lieferkette; Logistics; Mathematical models; Operational research and scientific management; Operational research. Management science; Optimization; Poisson density functions; Production planning; Produktionsplanung; Replenishment; setup cost; Stability; Stochastischer Prozess; Stockpiling; Supply chains; Refeeding; Optimal policy; Cooperative systems; Modeling; Poisson process; Shortage; Replenishment; Economic order quantity; Setup time; Cost function; Inventory control; Manufacturing cost; Cost lowering; compound Poisson process; Investment; Logistics; setup cost
• ISSN: 0020-7543; 1366-588X
• DOI: 10.1080/00207541003610270

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.