Managing dual warehouses with an incentive policy for deteriorating items

Abstract

Distributors in a supply chain usually limit their own warehouse in finite capacity for cost reduction and excess stock is held in a rent warehouse. In this study, we examine inventory control for deteriorating items in a two-warehouse setting. Assuming that there is an incentive offered by a rent warehouse that allows the rental fee to decrease over time, the objective of this study is to maximise the joint profit of the manufacturer and the distributor. An optimisation procedure is developed to derive the optimal joint economic lot size policy. Several criteria are identified to select the most appropriate warehouse configuration and inventory policy on the basis of storage duration of materials in a rent warehouse. Sensitivity analysis is done to examine the results of model robustness. The proposed model enables a manufacturer with a channel distributor to coordinate the use of alternative warehouses, and to maximise the joint profit of the manufacturer and the distributor.

Keywords:

• deteriorating items
• two-warehouse
• supply chain management
• inventory

Acknowledgements

The authors gratefully acknowledge the comments and suggestions of the editor and the anonymous referees.

Additional information

Notes on contributors

Jonas C.P. Yu

Jonas C.P. Yu gains his PhD degree from Institution of Industrial Management at National Central University, Taiwan, in 2006 and his MSc degree from Chung Yuan Christian University, Taiwan, in 1995. After a long career in several international firms, he has been associate professor of Logistics Management at Takming University of Science and Technology, Taiwan, and Chung Yuan Christian University. His research interests are production and material control, inventory and supply chain management, optimisation problems, and pricing and yield management.

Kung-Jeng Wang

Kung-Jeng Wang is a professor in the Department of Industrial Management and a vice dean in the School of Management at National Taiwan University of Science and Technology. He received his PhD degree in industrial engineering from University of Wisconsin–Madison, Madison, WI, USA. Dr Wang works closely with industries for research on manufacturing management and resource portfolio planning. He has published about 60 academic articles in international academic journals, such as in IEEE Transactions on Systems, Man, and Cybernetics, IIE Transactions, European Journal of Operational Research, International Journal of Production Research, and Journal of Robotics and CIM. His current research interests are in the areas of intelligent production systems and supply chain management.

Yu-Siang Lin

Yu-Siang Lin is a researcher in School of Management at National Taiwan University of Science and Technology in Taiwan. He received his PhD degree from the Department of Industrial Management at National Taiwan University of Science and Technology in 2012. His current research interests are in the areas of supply chain management, warehouse configuration, production planning, inventory system, and applied computer science.