Determining production-shipment policy for a vendor-buyer integrated system with rework and an amending multi-delivery schedule

This paper examines a vendor-buyer integrated system that includes rework and an enhanced product delivery policy that aims at lowering stock holding costs for both the vendor and the buyer. It extends the recent work of Chiu et al. (2011) by incorporating an amending 'n + 1' shipment policy into their model. The objective is to determine both the optimal replenishment lot size and optimal number of shipments that would minimize the long-run average cost for the proposed system. This study uses mathematical modeling along with Hessian matrix equations to obtain closed-form solutions of optimal replenishment lot size and number of deliveries. In addition, this study demonstrates, through a numerical example, the practical implications of the results in various scenarios.