A collaborative strategy for deteriorating inventory system with imperfect items and supplier credits

In this study, we develop a deteriorating inventory system consisting of one supplier and one buyer. The system considers supplier-buyer collaboration and trade credit. The objective is to maximize the total profit of the whole system when shortage is completely backordered. In order to entice buyer and compensate his shortage loss, the supplier allows the buyer's permissible delay in payment. Four proposed mathematical scenarios demonstrate how a collaborative approach to decision making can achieve a global optimality. A negotiation mechanism is incorporated to share fairly the profit between the players. The sensitivity analysis of the demand rate, replenishment rate, deterioration factor and other related parameters show that the collaboration strategy and the deterioration factor have significantly affected the total profit. (C) 2011 Elsevier B.V. All rights reserved.