An operational policy for an integrated inventory system under consignment stock policy with controllable lead time and buyers' space limitation

This paper aims to enable the decision maker of an integrated vendor-buyer system, under Consignment Stock (CS) policy, to make the optimal/sub-optimal production/replenishment decisions where the buyer places a space limitation to the vendor and the lead-time is controllable with an extra investment. Within any production cycle, the vendor produces at a finite rate and ships the outputs to the buyer with a number of equal-sized lots. With a long-term consignment stock agreement, the vendor takes responsibility to maintain a certain inventory level in the buyer's warehouse. Some of the shipments are delayed so that the buyer's inventory does not go beyond the capacity limitation. The buyer compensates the vendor after the complete consumption of the products. The holding cost consists of a storage component and a financial component. Two constraint four-variable non-linear integer optimization models are established wherein the buyer space limitation is considered. Because the developed models are mathematically very difficult to solve, three doubly hybrid meta-heuristic algorithms are employed to solve the models. The computational results show that one of these three algorithms works very well both in the sense of the success rate and the mean CPU time. The analysis of the computational example also reveals the quantitative effects the buyer space limitation may have to the annual joint total expected cost (JTEC) of the integrated system.