Development of Food Inventory Model in an Integrated Vendor-Buyer System: Case Study in Food Industry

This research develops an integrated production-inventory model for food products in a single vendor single buyer environment. In manufacturer or the vendor's system, the quality of raw materials decreases over time, while in retailer or the buyer's system, the finished goods suffer from perceived value loss. Unlike current research in this area, the vendor has work-in-process (WIP) inventories. A mathematical model is developed where the objective function is the joint total profit of both players, i.e. manufacturer and retailer. Three variables, namely, the number of procurement cycle, the length of production cycle and the number of delivery are decided to improve the total profit. The numerical test shows that the inventory policy from the proposed model performs better compared the benchmark policy in term of the joint total profit. The profit gained from the proposed policy is 13% higher compared to the existing policy.