VENDOR-BUYER INTEGRATED PRODUCTION-INVENTORY SYSTEM FOR IMPERFECT QUALITY ITEM UNDER TRADE CREDIT FINANCE AND VARIABLE SETUP COST

This paper model a vendor-buyer integrated production-inventory system by considering issues of imperfect quality of the item, trade credit finance, setup cost reduction and shortages including partial backlogging and lost sale. The vendor produces a lot in one production setup and sends to the buyer in multiple shipments to fulfill customers' demand. Due to imperfect production and/or unsafe transportation, the received lot of the buyer contains the imperfect quality of the item, which is detected through the screening process, and is sold at a discounted price in a single batch at the end of the process. To accelerate bulk purchasing, the vendor offers a trade credit period to the buyer to settle the amount. In this regard, we develop a methodology to account the opportunity cost and opportunity gain. Depending upon the screening period mu, trade credit period M, shortage beginning time t and the buyer's scheduling period T, we consider four cases: (1) M < mu < t < T, (2) mu < M < t < T, (3) mu < t M < T and (4) mu < t < T < M. The proposed integrated model is testified with numerical experiment and sensitivity analysis by changing the value of key parameters.