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Technical Note
Abstract
This paper deals with the development of an optimal policy for the single-vendor single-buyer integrated production}inventory system. The successive batches of a lot are transferred to the buyer in a "nite number of unequal and equal
sizes. The successive unequal batch sizes increase by a "xed factor. The capacity of the transport equipment used to
transfer batches from the vendor to the buyer is limited. The objective is to minimize the total joint annual costs incurred
by the vendor and the buyer. 2000 Elsevier Science B.V. All rights reserved.
Keywords: Production; Inventory; Capacity constraint
1. Introduction
An interesting optimization problem is encountered whenever a single product needs to besupplied by
a vendor to a buyer over an in"nite time horizon. It has been established that by integrating the vendor's as
well as the buyer's production/inventory/transportation problem the total of all the costs incurred by the
vendor and the buyer can be reduced signi"cantly.
Goyal [1] considered an integrated inventory model for the single-supplier single-customer problem.
Banerjee [2] investigated the lot for lot policy in which the vendor manufactures a lot at a "nite rate of
production. Goyal [3] suggested equal sized shipments to the buyer only after "nishing the entire production
lot. Based on equal sized shipments to the buyer Lu [4] considered heuristics for the single-vendor
single-buyer problem. Goyal [5] suggested an alternative policy in which successive shipments of a lot
increase by a factor equal to the ratio of the production rate to the demand rate. Hill [6] introduced a more
general class of policy for determining optimal total cost by increasing the successive batch size by a "xed
factor ranging from 1 to the production rate divided by the demand rate. By combining Goyal's [5] policy
* Corresponding author.
0925-5273/00/$ - see front matter 2000 Elsevier Science B.V. All rights reserved.
PII: S 0 9 2 5 - 5 2 7 3 ( 9 9 ) 0 0 0 8 2 - 1
306
and an equal shipment size policy, Hill [7] derived a globally optimal batching and shipping policy for the
single-vendor single-buyer integrated production}inventory problem. This policy gives a lower total cost as
compared to the previous policies. In this paper we develop an optimal solution procedure for the
single-vendor single-buyer production}inventory system with unequal and equal sized shipments from the
vendor to the buyer and under the capacity constraint of the transport equipment.
The vendor transports the entire lot, Q, in m shipments in which e!1 are unequal and m#1!e are equal.
It is assumed that P'D and h 'h .
3. Development of the model
3.1. Stock holding cost
In the model one production cycle is the time during which Q satis"es the demand rate D. Thus the length
of each cycle is Q/D and the number of cycles per unit time is D/Q. Following the policy adopted by Goyal [5]
the batch sizes are z, kz, kz, 2, kK\z. Here all the batches are unequal and each of them increases to the
307
next by a factor k"P/D. The entire production lot of size Q is transported in e!1 unequal batches followed
by (m#1!e) equal batches. The unequal batches are z, kz, kz, 2 kK\z. Following the policy developed
by Goyal and Szendrovits [8], the general expression for the time weighted inventory is
QZ/P#(Q/2)(1/D!1/P).
This includes the inventories of both the vendor and the buyer. The inventory per lot for the buyer can be
evaluated as follows:
kz
kz
kC\z
kC\z
1 z
z #kz #kz #2#kC\z
#(m!e)kC\z
.
2 D
D
D
D
D
Since z"Q/f (m, e) and f (m, e)"(m!e)kC\# C\kP, the inventory cost per lot for the buyer is given by
P
h
Q
kC!1
#(m!e)kC\ .
2D + f (m, e), k!1
The inventory for the vendor can be determined by subtracting the inventory for the buyer from the total
inventory of the system, so the inventory cost for the vendor per lot is
Qzh
Q 1
1
h
Q
kC!1
#
! h !
#(m!e)kC\ .
2 D P 2D + f (m, e), k!1
P
Therefore, the total inventory cost per lot of the vendor}buyer system is evaluated as follows:
Qzh
Q 1
1
Q
kC!1
#
! h #
#(m!e)kC\ (h !h ).
P
2 D P
2D+ f (m, e), k!1
As there are D/Q cycles per unit of time, the total inventory cost per unit of time is evaluated from the
following:
QDh
QDh 1
1
Q (kC!1)/(k!1)#(m!e)kC\
#
! #
(h !h ).
Pf (m, e)
2
D P
2 +(kC!1)/(k!1)#(m!e)kC\,
3.2. Set-up and shipment cost
Cost of set-up is (D/Q)A and cost of shipment is (D/Q)mA .
Therefore, the total annual cost, C of the vendor}buyer system can be expressed as
B mb
a
h !h (kC!1)/(k!1)#(m!e)kC\
C" # #AQ#Q
#
,
Q
Q
f (m, e)
2
+(kC!1)/(k!1)#(m!e)kC\,
(1)
where B"DA , b"DA , A"(Dh /2) (1/D! 1/ P), and a"Dh /P.
3.3. The constraint
When the capacity of the equipment used for transporting batches from the vendor to the buyer is limited,
the largest batch size must not exceed the capacity of the transport equipment. So the largest batch size must
be equal (based on Goyal and Szendrovits [8]) to or less than g. Hence the following constraint must be
satis"ed:
C\
Q
e! k\P)m! .
g
P
(2)
308
a
h !h (kC!1)/(k!1)#(m!e)kC\
B mb
# #AQ#Q
#
f (m, e)
+(kC!1)/(k!1)#(m!e)kC\,
Q
Q
2
C\
Q
e! k\P)m! .
g
P
Note that e)m.
subject to
mb
a
h !h (kC!1)/(k!1)#(m!e)kC\
H(Q, m, e)" #Q
#
Q
2
f (m, e)
+(kC!1)/(k!1)#(m!e)kC\,
for given Q, considering the integer nature of m and e. The non-convex nature of the cost function in Q leads
us to carry out a directed search procedure over Q in the next step. The analysis presented here is given in
Hoque and Kingsman [9]. For given Q and m, note that the minimum of the partial cost function, H(Q, m, e)
is where f (m, e) has its greatest value. It can be shown that this minimum is where e is the largest integer
satisfying the constraint given by (2). For e"m all batches are unequal and the constraint given by (2)
reduces to
K\
Q
k\P* .
g
P
For given Q, a set of value (m, e) such that (m, e) satis"es constraint (2) but (m, e#1) does not, is de"ned to be
a basic feasible solution. A necessary and su$cient condition for the set (m, e) to form a basic feasible solution
is that it satis"es
Q
C\
(3)
1!k\C' m! ! e! k\P *0.
g
P
For given Q, the smallest integer greater than Q/g can always be taken as the initial value of m. Let it be
represented by m . Obviously, the right-hand side of constraint (2) is always non-negative. For m , the
resulting initial value of e represented by e will be the largest integer satisfying constraint (2). Let the
di!erence between the right-hand and the left-hand sides of the inequality in (2) for (m , e ) be denoted by
e ranging between 0 and 1. That is,
Q
C \
e " m ! ! e ! k\P *0.
g
P
309
If R"Int(e #1/(k!1)kC \), then by repeated application of the inequalities in (2) and (3) it can be shown
that all the possible alternative relative values of m and e which can give the minimum of H(Q, m, e) are given
by discontinuous ranges:
(m #n, e #n)
(m #n, e #n#r)
310
QDh 1
1
Q (jC!1)/(j!1)#(m!e)jC\
QDh
#
! #
(h !h )
2
D P
2
+f (m, e, j,
Pf (m, e, j)
QDh
QDh 1
1
Q (kC!1)/(k!1)#(m!e)kC\
#
! #
(h !h ),
Pf (m, e, k)
2
D P
2
+ f (m, e, k),
where
f (m, e, k)"(m!e)kC\# C\kP,
P
f (m, e, j) "(m!e)jC\# C\jP
P
or
2Dh
(kC!1)/(k!1)#(m!e)kC\
(jC!1)/(j!1)#(m!e)jC\
(
!
P(h !h )
+ f (m, e, j),
+ f (m, e, k),
1
1
!
.
f (m, ej) f (m, e, k)
Value of g
380
250
128
250
Method
Batch sizes
Lot
Goyal [5]
Lu [4]
Hill [6]
Hill [7]
This paper
This paper
Goyal [5]
Lu [4]
Hill [6]
Hill [7]
This paper
This paper
552
555
551
258
560
560
455
546
533
541
552
494
1818
1903
1814
1793
1792
1792
2089
2008
1972
1939
1942
1985
311
If h changes from 5 to 7 and g"128, then the following policy is obtained: QH"552, CH"1942 and
batch sizes are 40, 128, 128, 128, 128.
The total cost found by the method in this research is 3 units more than the total cost found by Hill [7].
This is due to the integer nature of the shipment sizes obtained by him. The results obtained by various
methods for h "5 and 7 are given in Table 1.
6. Conclusion
This paper extends the idea of producing a single product in a multistage serial production system with
equal and unequal sized batch shipments between stages, originally presented by Goyal and Szendrovits [8]
and modi"ed by Hoque and Kingsman [9], to the single-vendor single-buyer production}inventory system.
A number of properties that the optimal solution must satisfy have been established. With the help of these
properties an algorithm for determining the optimal policy has been developed.
Appendix A
Show that
(kC!1)/(k!1)#(m!e)kC\
+(kC!1)/(k!1)#(m!e)kC\,
is a non-increasing function of m and e whether e increases by 1 or 2 as m increases by 1.
Proof.
(kC!1)/(k!1)#(m!e)kC\ (kC>!k)/(k!1)#(m!e)kC
"
+(kC>!k)/(k!1)#(m!e)kC,
+(kC!1)/(k!1)#(m!e)kC\,
(kC>!1)/(k!1)#(m!e)kC!1
a!1
"
"
,
+(kC>!1)/(k!1)#(m!e)kC!1,
(b!1)
where
kC>!1
a"
#(m!e)kC,
k!1
kC>!1
b"
#(m!e)kC.
k!1
Now let (a!1)/(b!1)(a/b or a(2b!1)(b or ab(b (as b(2b!1 or b(b (as a'b) which is
a contradiction.
So (a!1)/(b!1)*a/b. Substituting the values of a, b it becomes
(kC!1)/(k!1)#(m!e)kC\ (kC>!1)/(k!1)#(m!e)kC
*
.
+(kC!1)/(k!1)#(m!e)kC\,
+(kC>!1)/(k!1)#(m!e)kC,
Thus, if e increases by 1 as m increases by 1, then
(kC!1)/(k!1)#(m!e)kC\
+(kC!1)/(k!1)#(m!e)kC\,
is a non-increasing function of m and e.
312
313
314
Appendix C
Show that
1#k#k#2#kC\#(m!e)kC\ 1#j#j#2#jC\#(m!e)jC\
!
+1#k#k#2#kC\#(m!e)kC\,
+1#j#j#2#jC\#(m!e)jC\,
1
1
!
1#j#j#2#jC\#(m!e)jC\ 1#k#k#2#kC\#(m!e)kC\
is an increasing function of j.
315
Proof. Let
r/t!a/b r/t!c/d
*
,
1/b!1/t
1/d!1/t
where
r"1#k#k#2#kC\#(m!e)kC\,
t"1#k#k#2#kC\#(m!e)kC\,
a"1#j#j#2#jC\#(m!e)jC\,
b"1#j#j#2#jC\#(m!e)jC\,
c"1#(j#1)#(j#1)#2#(j#1)C\#(m!e)(j#1)C\,
d"1#(j#1)#(j#1)#2#(j#1)C\#(m!e)(j#1)C\.
Then
bct(t!b)#(bct(d!t)'rbd(d!b)
(because ad(bc; otherwise, 1'bc/ad'1, since a/b(c/d)
which implies r/t)c/d. Since r/t*c/d we have r/t*(c/d)(t/d)'c/d (as t/d'1). So r/t)c/d is a contradiction. Hence the proof.
References
[1] S.K. Goyal, Determination of optimum production quantity for a two-stage production system, Operational Research Quarterly 28
(1977) 865}870.
[2] A. Banerjee, A joint economic lot size model for purchaser and vendor, Decision Sciences 17 (1985) 292}311.
[3] S.K. Goyal, A joint economic lot size model for purchaser and vendor: A comment, Decision Sciences 19 (1988) 236}241.
[4] L. Lu, A one-vendor multi-buyer integrated inventory model, European Journal of Operational Research 81 (1995) 312}323.
[5] S.K. Goyal, A one-vendor multi-buyer integrated inventory model: A comment, European Journal of Operational Research 82
(1995) 209}210.
[6] R.M. Hill, The single-vendor single-buyer integrated production inventory model with a generalized policy, European Journal of
Operational Research 97 (1997) 493}499.
[7] R.M. Hill, The optimal production and shipment policy for the single-vendor single-buyer integrated production inventory
problem, International Journal of Production Research 37 (1999) 2463}2475.
[8] S.K. Goyal, A.Z. Szendrovits, A constant lot size model with equal and unequal sized batch shipments between production stages,
Engineering Costs and Production Economics 10 (1986) 203}210.
[9] M.A. Hoque, B.G. Kingsman, An optimal solution algorithm for the constant lot size model with equal and unequal sized batch
shipments for the single product multistage production system, International Journal of Production Economics 42 (1995) 161}174.