Consignment stock policy with unequal shipments and process unreliability for a two-level supply chain

Abstract

This paper considers a vendor managed inventory model with consignment stock policy in which a single vendor delivers a single product to a single buyer in unequal-sized shipments. The vendor’s production process may produce some defective items during a production run. The buyer performs a screening process immediately after receiving each delivery from the vendor and the vendor bears the warranty cost of defective item, if any. The buyer either scraps or repairs the defective items by sending them to a repair factory. The average expected profit of the integrated system is derived using renewal reward theorem and a solution procedure is suggested to determine the optimal shipment policy of the vendor. Numerical examples are taken to determine both the equal and unequal shipment policies and compare their relative performances.

Keywords:

• supply chain
• VMI
• consignment stock
• unequal shipment
• defective production process

Notes

No potential conflict of interest was reported by the authors.

1 In the CS policy, the vendor uses the buyer’s warehouse to store his products. The vendor can produce some defective items but he has no option to check the items. The buyer is supposed to perform the screening process on behalf of the vendor for cost-effectiveness. The vendor supports the buyer for this job, in addition to providing compensation for any defective item found at screening. This policy is applicable to some medical instruments for which the inspection is carried out by the buyer (as directed by the vendor in order to avoid severe consequences) before selling those items to his customers.