JOINT OPTIMIZATION INVENTORY MODEL WITH STOCHASTIC DEMAND AND CONTROLLABLE LEAD TIME BY REDUCING ORDERING COST AND SETUP COST

摘要

This paper explores the setup and order processing cost reduction in the single vendor and the single buyer integrated production inventory model. The mathematical model is derived to investigate the effects of the optimal decisions when capital investment strategies in setup and order processing cost reduction are adopted. This proposed model intends to derive the exact cost function for the entire supply chain including logarithmic investment functions and an efficient computational algorithm is constructed to find the best solution. We have developed the set up cost and ordering cost reductions in an integrated inventory production system in which demand during the lead time follows a normal distribution. The objective of this paper is to minimize the integrated total cost by optimizing the order quantity, setup cost, ordering cost, safety factor and number of deliveries simultaneously. An algorithm to find the optimal solutions is developed. Order cost and setup cost are considered as logarithmic functions of capital investment. Besides, an efficient algorithm is developed to determine the optimal solution, and our approach is illustrated through a numerical example. A computer code using the software Matlab is developed to derive the optimal solution and numerical example is presented to illustrate the model. Finally, sensitivity analysis is carried out with respect to the key parameters and some managerial implications are also included.