Managing level of consigned inventory with buyer's warehouse capacity constraint

Abstract

In this article, we consider a single-manufacturer, single-buyer supply chain problem in which a manufacturer produces a single item product and periodically delivers it to the buyer on the basis of a consignment policy. An integrated inventory control model, making joint economic lot size decisions of the manufacturer's production batch and the replenishment lot subject to consignee's warehouse space capacity constraint, is constructed to minimise the manufacturer's total cost. The model developed is a general model from which known results in specific cases can be deduced. An algorithm that optimally solves the proposed model is presented along with a numerical illustration. The characteristics of the model and the impact of available consignee's warehouse space capacity constraint on the manufacturer's total cost, production batch, and replenishment lot sizes are also discussed.

Keywords:

• supply chain management
• consignment stock
• joint economic lot size
• warehouse capacity constraint