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To cite this article: Hesham K. Alfares & Ahmed M. Attia (2017): A supply chain model with
vendor-managed inventory, consignment, and quality inspection errors, International Journal of
Production Research, DOI: 10.1080/00207543.2017.1330566
Download by: [The UC San Diego Library] Date: 27 May 2017, At: 09:44
International Journal of Production Research, 2017
https://doi.org/10.1080/00207543.2017.1330566
A supply chain model with vendor-managed inventory, consignment, and quality inspection
errors
Hesham K. Alfares* and Ahmed M. Attia
Systems Engineering Department, King Fahd University of Petroleum & Minerals, Dhahran, Saudi Arabia
(Received 10 May 2016; accepted 1 May 2017)
This paper considers the integration between quality control and production inventory control in supply chain
management. Specifically, we study the effect of inspection errors on the costs incurred in a supply chain system with a
single vendor and multiple buyers. In this system, the vendor enters into a vendor-managed inventory (VMI) and a
consignment stock (CS) partnership with several buyers. We assume that the items made by the vendor are not in perfect
quality, but they contain a given proportion of defective units. We also assume that quality inspection of these items by
the buyers is subject to sampling errors. Three cases indicating to different levels of supply integration are considered:
VMI–CS system, traditional system and integrated system. For each case, a mathematical model is formulated, an
optimum solution is developed, and a numerical example is solved.
Keywords: supply chain management; quality control; vendor managed inventory; consignment stock; inspection
1. Introduction
Companies around the world are seeking to gain competitive advantage through increased collaboration with their
supply chain partners. According to Khan, Jaber, and Ahmad (2014), cooperation strategies between vendors (suppliers
or manufacturers) and buyers (retailers) include quantity discounts, common cycle times and quality inspections.
Consignment stock (CS) and vendor-managed inventory (VMI) are also effective strategies that are used for higher
integration and information sharing between suppliers and buyers.
Blackstone and Cox (2008) defined consignment stock as ‘the process of a supplier placing goods at a customer
location without receiving payment until after the goods are used or sold’. Similar to VMI, CS is an effective supply
chain management (SCM) cooperation strategy, indicating a higher degree of collaboration among supply chain partners.
Ben-Daya et al. (2013) described VMI as a vendor–buyer agreement in which ‘the vendor is responsible for managing
the inventory for the buyer, including initiating orders on behalf of the buyer, so the vendor in return gets more
visibility about the product’s demand’. The main difference between the two terms, according to Gümüş, Jewkes, and
Bookbinder (2008), is that the ordering decisions and costs are taken by the buyer in the CS case and by the vendor in
the VMI case.
Ben-Daya et al. (2013) examined a single-vendor, multiple buyer supply chain under an integrated partnership policy
that combines VMI and CS. They concluded that this policy is beneficial to both the vendor and the buyers, if the ven-
dor has a flexible capacity and a low set-up cost, while the buyers have high ordering costs. Khan, Jaber, and Ahmad
(2014) considered the manufacturer’s imperfect quality and the buyer’s inspection errors in a two-echelon supply chain
model. In addition to minimising the total supply chain costs, their model can be used to improve relationship manage-
ment, product and process design and employee training.
This paper combines and extends the models of Ben-Daya et al. (2013) and Khan, Jaber, and Ahmad (2014), in
order to integrate production, inventory and quality control in a collaborative supply chain framework. Specifically, this
paper presents a single-vendor, multiple buyer supply chain model that integrates VMI and CS policies with imperfect
quality and inspection errors. Subsequent parts of this paper are organised as follows. Relevant literature is reviewed in
Section 2. The model is formulated and the solution is developed in Section 3. A numerical example is solved in
Section 4. Finally, conclusions and suggestions are provided in Section 5.
2. Literature review
In this section, we review the inventory management literature in relevant supply chain models related to the following
topics: (1) single-vendor, multiple buyers models, (2) CS and VMI policies in single-vendor, multiple buyers models,
(3) profit sharing in vendor–buyer partnership, (4) integrated quality control and inventory management and (5) compar-
ison of pertinent vendor–buyer models.
Bookbinder (2008) analysed the use of CS alone and in combination with VMI in a supply chain with deterministic
demand. They concluded that a price change could be used as an incentive for both sides in the CS partnership, the ven-
dor and the buyer. Chen and Liu (2008) emphasised the mutual benefits for suppliers and buyers resulting from adopting
CS policy in SCM. They noted that it is not easy for suppliers to motivate buyers to accept the CS policy under a
fixed-fee and per-unit commission. Battini et al. (2010) developed a single-vendor, multi-buyer model considering the
buyer’s warehouse space limitations and risks associated with stock-outs and material obsolescence.
Hariga et al. (2013) formulated a mixed-integer non-linear programme to minimise joint inventory costs for a single
vendor and multiple buyers in a VMI contacts with storage-level restrictions. Assuming the vendor has an unlimited
supply and a lower unit holding cost than the buyers, an efficient heuristic is used to solve the model. Ben-Daya et al.
(2013) studied the effect of three partnership policies for a single vendor and multiple buyers: (1) no coordination agree-
ment, (2) VMI and CS agreements and (3) vertical integration with a single decision-maker. The three policies were
compared, and the benefits and features of the integrated VMI–CS policy were highlighted.
Choudhary et al. (2014) analysed the benefits to suppliers and buyers gained from shifting from buyer-managed
inventory (BMI) to VMI and CS. They concluded that buyer cost savings increase under CS policy if the ordering cost
and demand variability increase over time. However, the supplier would prefer the CS policy if the set-up and shipment
costs are very high. Zanoni, Mazzoldi, and Jaber (2014) included taxes imposed on greenhouse gases emissions in the
system total cost. Zanoni and Jaber (2015) considered a case where the buyer’s customer demand depends on the
buyer’s stock level. Shortages are not allowed, and are prevented by enforcing a minimum stock level and instantaneous
replenishment policy.
Hong et al. (2016) analysed a multi-supplier, multi-buyer supply chain where the buyers’ stochastic demand follows
a uniform distribution. Considering shortages as lost sales, the VMI system was shown to have a lower total cost than
the traditional supply chain system. Zahran, Jaber, and Zanoni (2016a, 2016b) considered a new dimension in applying
the CS policy, which is the effect of payment time. Their models examined three payment time scenarios: on time, delay
without interest and delay with interest. Zahran, Jaber, and Zanoni (2016a, 2016b) concluded that a contract allowing
delayed payments with interest is the best for the system. Recently, Lee, Wang, and Chen (2017) considered the restock-
ing level at the buyer’s side as a decision variable. For a single-vendor, single-buyer supply chain with stock-dependent
demand, they found out that profit is maximised when the buyer adopts a minimum reorder level policy. Hemmati,
Fatemi Ghomi, and Sajadieh (2017) assumed a linear relation between the buyer’s customer demand and both the stock
level and the market price.
assumed that the supplier is distant from the vendor, making it impractical to send back defective items to the supplier
for reworking. Therefore, the vendor has to compensate for the defective parts from the nearest supplier. Bazan et al.
(2014) tried to solve the problem imperfect production (i.e. production of defective parts) at the vendor’s side. By apply-
ing minor setups, they considered rework and interruption of the production run to restore the process to the in-control
condition.
Jaber, Zanoni, and Zavanella (2014b) formulated a single-vendor, single-buyer supply chain network under CS stock
policy. The buyer is responsible for production, remanufacturing (repair) and waste disposal. Two scenarios are consid-
ered: inspection at the vendor’s side and inspection at the buyer’s side. The model assumes that newly produced prod-
ucts and repaired products have the same quality. Defective items produced during production and remanufacturing are
ignored. Darwish, Odah, and Goyal (2015) examined two VMI policies for single-vendor multiple buyers SC systems.
The inspection for non-conforming units is assumed to be error-free and to be done at the vendor’s side. Along the
same line, Khan et al. (2016) analysed the effect of the defective items received from the vendor, considering two alter-
native disposal schemes for defective items. Assuming imperfect items are either scrapped or reworked, Akbarzadeh,
Taleizadeh, and Esmaeili (2016) considered a more realistic case where the rework process of the defective (imperfect)
items is not perfect but may still produce imperfect items. Hariga, As’ad, and Khan (2017) considered non-accepted
items as parts that need remanufacturing. They proposed a model that optimises the order quantity and the number of
shipments for both newly manufactured parts and remanufactured parts. Giri, Chakraborty, and Maiti (2017) considered
unequal shipment sizes, assuming inspection is done by the buyer and defective items are classified as either scrapped
or repaired.
Quality inspection can be performed on the vendor’s side as in Goyal, Huang, and Chen (2003) and Bazan et al.
(2014), on the buyer’s side as in Salameh and Jaber (2000), Khan, Jaber, and Ahmad (2014) and Giri, Chakraborty, and
Maiti (2017), or on both sides as in Sana (2011). Goyal, Huang, and Chen (2003) considered the case where the quality
inspection is done on the vendor’s side with no errors in the classification results. The cost of producing bad items is
charged to the vendor, who will sell lower quality items at a discounted price to the buyer. Khan, Jaber, and Ahmad
(2014) formulated a more comprehensive model assuming that quality inspections are performed by the vendor. They
considered that the defective items could be either remanufactured or disposed of at given costs, in charge of the vendor.
Sana (2011) analysed a three-layer supply chain consisting of a supplier, a manufacturer and a retailer. Items available
either at the supplier or the manufacturer are sent to the next stage in unequal shipments. At each stage, received items
are fully inspected, and defectives are returned to the previous stage in a single shipment.
In this paper, quality inspections are assumed to be performed by the buyers because this is the practice in many
real-life situations. This is also the assumption made by many researchers in the field, including Salameh and Jaber
(2000), Jaber, Zanoni, and Zavanella (2014a, 2014b), Khan, Jaber, and Ahmad (2014), Khan et al. (2016), and Giri,
Chakraborty, and Maiti (2017).
et al. (2013) assume a multi-buyer SC system, with VMI and CS but no quality or inspection issues. On the other hand,
Khan, Jaber, and Ahmad (2014) assume a single-buyer system with quality defects and inspection errors, but no CS.
The features of Ben-Daya et al. (2013) and Khan, Jaber, and Ahmad (2014) models, combined in this paper, fre-
quently occur together in many real-life supply chain systems. For example, Giri, Chakraborty, and Maiti (2017) cite
the use of the CS policy for new products or new sales channels in the automotive and health care industries. Jaber,
Zanoni, and Zavanella (2014a) discuss the role of inspection in quality assurance in global supply chains, where incom-
ing material is purchased from distant suppliers. Different item categories such as die cast aluminium components, cast
iron parts and printed circuit boards tend to have different proportions of defective items. Finally, Khan et al. (2016)
describe the benefits of combining the VMI policy with quality inspections to mitigate the effects of demand uncertainty
and supply defects. This policy is expected to reduce warranty and repair costs in many real-life situations, such as the
supply chains of Walmart, Proctor & Gamble, and Johnson & Johnson.
In this paper, the models of Ben-Daya et al. (2013) and Khan, Jaber, and Ahmad (2014) are combined and extended
into a more general model with a wider range of realistic features. The new SCM model, described below, is the first to
6 H.K. Alfares and A.M. Attia
consider simultaneously the following realistic aspects: multiple buyers, multiple shipments, VMI–CS, quality defects
and inspection errors.
3. Model development
In this section, steps used to formulate and solve the VMI–CS model with inspection errors are described.
3.1 Notation
The following notation is mainly adapted from Ben-Daya et al. (2013) to describe the integrated VMI–CS model, and
from Khan, Jaber, and Ahmad (2014) to represent errors in the inspection process:
3.2 Assumptions
(1) The vendor is responsible for ordering costs Abpi, Avs and Avri and holding costs hboi and hv; while the buyers
are responsible for ordering costs Abri and holding costs hbsi.
(2) The vendor continuously produces nQ units during the first nt time units of each cycle.
(3) During each cycle, all buyers receive the same number of shipments (orders), n.
(4) For the same buyer i, all orders are of equal size, qi, but order sizes of different buyers vary in proportion to
their demand rates (qi/di is constant for all i).
(5) A cyclic delivery policy is used, where a shipment is sent to each buyer and then this cycle is repeated until all
shipments are delivered.
(6) The vendor’s production rate is higher than the total demand for all buyers (P > D).
(7) The screening (inspection) rate is equal for all buyers; this rate is greater than the consumption (demand) rate of
any buyer (Sr > di, i = 1, …, N).
International Journal of Production Research 7
(8) All items are inspected by the buyers, and only accepted items may be consumed. Falsely accepted units are
used to produce low-quality, lower value items.
(9) All rejected items are discarded together at the end of the inspection process, as assumed by Salameh and Jaber
(2000) and Khan, Jaber, and Ahmad (2014).
(10) The proportion of defective items, p, and the probabilities of type I and type II errors, e1 and e2, are all given
constants, which are the expected values of random variables with probability density functions f(p), f(e1) and f
(e2), respectively.
(11) The model is distribution-free, as the results do not depend on the specific forms of the functions f(p), f(e1)
and f(e2).
nqi ð1 pe Þ nQð1 pe Þ
T¼ ¼ (2)
di D
di T
qi ¼ (3)
nð1 pe Þ
Since the production rate is P, the time to produce one order of size qi is equal to qi/P, or diT/nP(1 − pe). Therefore, the
time to produce one order each for all buyers is given by:
DT
t¼ (4)
nPð1 pe Þ
Average vendor inventory Iv is calculated as follows. In the vendor’s inventory profile shown in Figure 2, each trian-
gle has a height equal to qi and a base equal to qi/P. Therefore, using (3), the area of each triangle for buyer i is given
by:
T 2 di2
TRIi ¼ (5)
2Pn2 ð1 pe Þ2
During any cycle, n orders are
N sent to each buyer. Summing n triangular areas for each of the N buyers and dividing
P
by the cycle time T gives Iv ¼ n TRIi =T , or:
i¼1
T X
N
Iv ¼ di2 (6)
2Pnð1 pe Þ2 i¼1
For each buyer, the average inventory is equal to the sum of the areas under the inventory profile (Figures 2 and 3)
divided by the cycle time. The total area is the sum of the areas of n pairs of trapezoids (TRP1 and TRP2) and one tri-
angle (TRI) at the end of the cycle. Therefore, the average inventory for buyer i is given by:
" ! #
1 Xn
Ib;i ¼ TRP1i;j þ TRP2i:j þ TRIi (7)
T j¼1
where
I1i:j þ I2i:j
TRP1i;j ¼ tsi (8)
2
I3i;j þ I4i;j
TRP2i;j ¼ ðt tsi Þ (9)
2
I42i;n
TRIi ¼ (10)
2di
International Journal of Production Research 9
PT N 2 PN 1pe
2Ppe (21)
hv i¼1 i
d þ i¼1 ðhboi þhbsi Þdi ½aþ Sr di
þ 2Pnð1p Þ 2 T
e
Since β(n) is a function of n, which is integer, the first-difference approach is used to minimise β(n) and
subsequently TCv(n, T). This approach is based on finding limits on the optimum value of n that satisfy the following
conditions:
bðn þ 1Þ [ bðnÞ
bðn1Þ [ bðnÞ
As shown in Appendix 2, applying this approach leads to the following optimal value for n:
vffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
h P i
u P
u 1 þ 4Avs hv Ni¼1 di2 þ Ni¼1 hboi di D Dpe þ 2Ppe di
u Sr
n¼t P hP
i (25)
N N
4ð1 pe ÞðP Ppe DÞ i¼1 h boi d i i¼1 A vri þ A bpi
The first step in solving the above example is to calculate the expected values of the uniformly distributed parame-
ters (p = 0.02, e1 = 0.02, e2 = 0.02) in order to use them in all subsequent steps.
To minimise the cost of buyer 2, following the same approach but using i = 1 and n = 2 leads to: n = 1, T = 0.129,
TCb2(n, T) = 470.66 and TC = 9059.86. Solutions with minimum TCb2(n, T) corresponding to different values of n are
shown in Table 4, where the optimum n and TCbi(n, T) values are highlighted.
If the objective is to minimise the total cost of the two buyers, then the optimum solution has n = 1, T = 0.128,
TCb(n, T) = 670.44 and TC = 9201.55.
Table 6. Sensitivity analysis for the objective of minimising system cost TC(n, T).
Ab ¼ buyers ordering cost; i.e. cost of placing and receiving an order for all buyers
¼ Ri Abpi þ Abri
hb ¼ buyers holding cost; i.e. cost of capital and physical storage for all buyers
¼ Ri ðhboi þ hbsi Þ
From the capacity ratio (D/P) sensitivity analysis results shown in Table 7, the following managerial insights are
obtained.
• The vendor’s cost is inversely related to the capacity ratio, under both the VMI–CS policy and the integrated sys-
tem policy.
• The total system cost is inversely related to the capacity ratio under the integrated system policy.
• Since the costs of the buyers are not directly affected by the capacity ratio, they should cooperate with the vendor
to decrease the capacity ratio (D/P).
• The best case for the vendor is higher D/P under the VMI–CS policy, and the best case for the SC system is
higher D/P under the integrated system policy.
Sensitivity analysis results for the order cost ratio (Avs/Ab) are shown in Table 8. For the given example, buyer order-
ing costs are given by: Ab = 15 + 10 + 50 + 25 = 100. Based on the results in Table 8, the following managerial insights
are obtained:
• As the order cost ratio increases, all costs (vendor, buyer and total cost) increase, under both the VMI–CS policy
and the integrated system policy.
• All parties, i.e. vendor and buyers, should try to decrease the order cost ratio (Avs/Ab) to achieve cost savings.
• The best case for the vendor is lower Avs/Ab under the VMI–CS policy, and the best case for the buyers and the
SC system is lower Avs/Ab under the integrated system policy.
Sensitivity analysis results for the holding cost ratio (hv/hb) are shown in Table 9. For the given example, buyer
holding costs are given by: hb = 2.5 + 2.5 + 2 + 3 = 10. Based on the results in Table 9, the following managerial
insights are obtained:
• As the holding cost ratio increases, the vendor cost and the total system cost increase, under both the VMI–CS
policy and the integrated system policy.
• As the holding cost ratio increases, buyers’ costs decrease under the integrated system policy.
• The best case for the vendor is lower hv/hb under the VMI–CS policy, the best case for the buyers is higher hv/hb
under the integrated system policy, while the best case for the SC system is lower hv/hb under the integrated
system policy.
• The effect of the holding cost ratio on buyers’ costs is negligible. Therefore, for best overall performance, the
buyers should agree to lowering this ratio and operating under the integrated system policy.
Dealing with production quality defects and quality inspection errors can be quite challenging for multiple buyers in
a VMI–CS agreement with a single supplier. The models of Ben-Daya et al. (2013) and Khan, Jaber, and Ahmad
(2014) included subsets of the issues that must be considered in these situations. Integrating these issues together, the
model presented in this paper can help in making coordinated decisions to maximise the benefits of all SC partners. This
model allows concerned VMI–CS partners to make optimum decisions on shipment sizes and frequencies to minimise
the total cost for the supply chain system. Comparing the results of the three cases of supply chain integration allows
each partner to know their optimum ‘individual’ solution, and the amount of tradeoff or sacrifice they are contributing
to the system. Considering the three cases, along with the sensitivity analysis results, is essential to compare alternative
scenarios in order to determine the most appropriate course of action for each partner as well as for the entire system.
5. Conclusions
This paper considered an integrated production inventory control and quality control problem in supply chain manage-
ment. The supply chain system consists of one vendor and several buyers, collaborating in a combined vendor-managed
inventory and consignment stock (VMI–CS) agreement. Two types of inspection errors were taken into consideration:
accepting a defective unit and rejecting a good unit. Three levels of supplier–buyer collaboration were investigated. A
mathematical model was constructed and optimum solution procedures were developed to minimise the total costs for
either the vendor, the individual buyers or the entire supply chain system. An example was solved to illustrate the solu-
tion process and properties. While considering inspection errors significantly increase the costs of both the vendor and
the buyers, the impact is more substantial on the vendor’s cost.
This paper contributed to the theory by combining and expanding two previous models and formulating a new
model with a unique set of realistic assumptions, as well developing an effective optimum solution algorithm for this
new model. The paper also contributed to practice by discussing the managerial insights of the new model and consider-
ations for its practical applications. Obviously, the model presented in this paper is limited by the set of assumption on
which it is built. However, the main limitations are the assumptions on the size, number and sequence of shipments to
the multiple buyers.
Removing the model’s limiting assumptions is one approach among several promising directions which are possible
for extending this work. These directions include the consideration of the following aspects: (1) uncertainty in market
demand, (2) a stochastic proportion of errors in the inspection process, (3) vendor’s capacity limitations, (4) shortages
and late deliveries, (5) shipment lead time variability, (6) unequal shipment sizes qi for each buyer, (7) a different num-
ber of shipments ni for each buyer, (8) a different cycle time Ti for each buyer and (9) environmental performance as in
(Bazan, Jaber, and Zanoni 2016).
International Journal of Production Research 17
Disclosure statement
No potential conflict of interest was reported by the authors.
ORCID
Hesham K. Alfares http://orcid.org/0000-0003-4040-2787
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Appendix 1
Derivation of (15), (16) and (17)
The total area of the trapezoids in (7) is defined as follows:
X
n
TRPZi ¼ TRP1i;j þ TRP2i:j (A1)
j¼1
International Journal of Production Research 19
Substituting in the values of TRP1i and TRP2i from (8) and (9) gives:
1X n
TRPZi ¼ tsi ðI1i;j þ I2i;j Þ þ ðt tsi ÞðI3i;j þ I4i;j Þ
2 j¼1
1X n
TRPZi ¼ 2tsi I1i;j di tsi2 þ 2tI1i;j 2tpe qi di ttsi di t 2 2tsi I1i;j þ 2tsi pe qi þ di tsi2 þ di ttsi
2 j¼1
1 Xn
TRPZi ¼ 2tI1i;j 2tpe qi di t 2 þ 2tsi pe qi
2 j¼1
X
n
1X n
TRPZi ¼ t I1i;j þ 2tpe qi di t 2 þ 2tsi pe qi
j¼1
2 j¼1
!
X
n
n
X
n X
n
I1i;j ¼ jqi ðj 1Þ½pqi þ di t
j¼i j¼1
X
n X
n X
n
I1i;j ¼ qi j ½pqi þ di t ðj 1Þ
j¼i j¼1 j¼1
X
n
nðn þ 1Þ ðn 1Þn
I1i;j ¼ qi ½pqi þ di t
j¼i
2 2
X
n
n
I1i;j ¼ ½ðn þ 1Þqi ðn 1Þðpqi þ di tÞ (A3)
j¼i
2
Ib;i ¼ n ndi tqi þ di tqi ndi pe tqi ndi2 t 2 di pe tqi þ 2di tsi pe qi
2 2 2 2 2 2
2di T þðnqi 2npe qi 2ndi tqi þ 2ndi pe tqi þ npe qi þ ndi t Þ
Ib;i ¼ n ½di tqi di pe tqi þ 2di tsi pe qi
2di T þðnq2i 2npe q2i ndi tqi þ ndi pe tqi þ np2e q2i Þ
Ib;i ¼ n tqi ðdi di pe ndi þ ndi pe Þ þ q2 ðn 2npe þ np2 Þ þ 2qi di tsi pe (A7)
i e
2di T
Substituting ts = qi/Sr into (A7) gives:
Ib;i ¼ n tqi ðdi di pe ndi þ ndi pe Þ þ q2 n 2npe þ np2 þ 2di pe (15)
i e
2di T Sr
Substituting out qi and t using (3) and (4) gives:
" #
2 2 2
Ib;i ¼ n d i DT di T 2 2di p e
ðdi di pe ndi þ ndi pe Þ þ n 2npe þ npe þ
2di T Pn2 ð1 pe Þ2 n2 ð1 pe Þ2 Sr
Ib;i ¼ T 2 2di pe
ðdi di pe ndi þ ndi pe ÞD þ n 2npe þ npe þ di P
2Pnð1 pe Þ2 Sr
Ib;i ¼ T 2di2 Ppe
di D di Dpe ndi D þ ndi Dpe þ ndi P 2ndi Ppe þ ndi Pp2e þ
2Pnð1 pe Þ2 Sr
Ib;i ¼ di T 2 2di Ppe
D Dpe nD þ nDpe þ nP 2nPp e þ nPp e þ
2Pnð1 pe Þ2 Sr
Ib;i ¼ di T 2Ppe di
a þ (16)
2Pnð1 pe Þ2 Sr
where
a ¼ D Dpe nD þ nDpe þ nP 2nPpe þ nPp2e
a ¼ Dð1 pe Þ þ n ðDð1 pe Þ þ Pð1 2pe þ p2e Þ
h i
a ¼ Dð1 pe Þ þ n ðDð1 pe Þ þ Pð1 pe Þ2
Appendix 2
Derivation of (25)
Substituting α from (17) into (24) gives:
PN
Avs þ n ðAvri þ Abpi Þ
i¼1
bðnÞ ¼
n (B1)
XN XN !
2 2Ppe
hv di þ hboi di ð1 pe Þ½ D þ nðP Ppe DÞ þ di
i¼1 i¼1
Sr
Dividing by the left hand-side term, the above inequality can be written as follows:
n2 þ n d [ 0 (B4)
where:
N
P PN
Avs hv di2 þ hboi di D Dpe þ 2Pp Sr
e
di
i¼1 i¼1
d¼ N (B5)
P
N P
ð1 pe ÞðP Ppe DÞð hboi di Þ ðAvri þ Abpi Þ
i¼1 i¼1
22 H.K. Alfares and A.M. Attia