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- 1. International Journal of JOURNAL OF PRODUCTION (IJPTM), ISSN 0976 – 6383
INTERNATIONAL Production Technology and ManagementTECHNOLOGY AND
(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
MANAGEMENT (IJPTM)
ISSN 0976- 6383 (Print)
ISSN 0976 - 6391 (Online)
Volume 4, Issue 3, September - December (2013), pp. 14-31
© IAEME: www.iaeme.com/ijptm.asp
Journal Impact Factor (2013): 4.3285 (Calculated by GISI)
www.jifactor.com
IJPTM
©IAEME
OPTIMAL SHIPMENTS, ORDERING AND PAYMENT POLICIES FOR
INTEGRATED SUPPLIER-BUYER DETERIORATING INVENTORY
SYSTEM WITH PRICE-SENSITIVE TRAPEZOIDAL DEMAND AND
NET CREDIT
1
Nita H. Shah,
2
Digeshkumar B. Shah
&
3
Dushyantkumar G. Patel
1
Department of Mathematics, Gujarat University, Ahmedabad-380009, Gujarat, India
Department of Mathematics, L.D. Engg. College, Ahmedabad- 380015, Gujarat, India
3
Department of Mathematics, Govt. Poly.for Girls, Ahmedabad- 380015, Gujarat, India
2
ABSTRACT
In this research, an integrated supplier-buyer inventory system is studied when market
demand is price-sensitive trapezoidal and units in inventory are subject to deterioration at a
constant rate. The buyer has an option to choose between discount in unit price and delay in
settling the account against the purchases made offered by the supplier. This type of trade
credit is termed as ‘net credit’. In this scenario, if the buyer settles payment within the
stipulated time period M1 , then the buyer receives a cash discount; otherwise the full payment
must be paid by the time M 2 ; where M 2 > M1 ≥ 0. The joint profit per unit time of supplierbuyer is maximized with respect to selling price, purchase quantity, number of transfers from
the supplier to the buyer and payment time. An algorithm is outlined to obtain optimal
solution. The numerical example is given to validate the proposed formulation. The
managerial issues are deduced through sensitivity analysis of inventory parameters.
Key Words: Integrated Inventory Model, Deterioration, Price-Sensitive Trapezoidal
Demand, Net Credit.
14
- 2. International Journal of Production Technology and Management (IJPTM), ISSN 0976 – 6383
(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
1. INTRODUCTION
The classical EOQ model assumes that the buyer uses cash-on-delivery policy which
is no longer a practice followed by the player of the supply chain. Goyal (1985) first
proposed the concept of delay payment policy opted by the supplier for the buyer to derive
economic order quantity. Thereafter, many researchers analyzed inventory model to study
the effect of delay period payment on stimulating the demand. One can refer review by Shah
et al. (2010) on trade credit and inventory policy. The most of the articles in this review
article established that demand stimulates and lowers on-hand stocking for supplier while
buyer can earn interest on the generated revenue. However, the provision for making early
payment was not addressed.
Ho et al. (2008) observed that the offer of trade credit delays cash-flow and increases
the risk of cash-flow shortage for the supplier. To combat this trade-off, the supplier offers a
cash discount in unit purchase price to attract the buyer for early payment. For example, the
supplier offers 3 % discount on buyer’s unit purchase price if payment is made within 10
days; otherwise the account is to be settled within 30 days for the purchases made. In
financial management, this credit term is regarded as ‘3/10 net 30’. Related articles are by
Liberia and Orgler (1975), Hill and Rainier (1979), Kim and Chung (1990), Arcelus and
Srinivasan (1993), Ouyanget al. (2002), Chang (2002), Huang and Chung (2003). In these
articles, the buyer is the sole decision maker.
Goyal (1976) discussed joint ordering policy for a single-supplier single-buyer. Banerjee
(1986) discussed joint policy when supplier considers a lot-for-lot production. Goyal (1988)
advocated that the holding cost reduces significantly; if the supplier’s economic production
quantity is an integral multiple of the buyer’s order. Bhatnagaret al. (1993), Lu (1995),
Goyal (1995), Vishwanathan (1998), Hill (1997, 1999) Kim and Ha (2003), Li and Liu
(2006) discussed variants of the joint inventory system.Routroy and Sanisetty (2007)
formulated multi-echelon supply chain inventory policies to minimize total joint cost with
respect to economic production/ordering quantity and reorder point.Abad and Jaggi (2003)
discussed a supplier – buyer inventory policy when supplier assumes a lot-for-lot shipment
policy and offers a delay period to the buyer for settling the account against the purchases
made. Shah et al.incorporated deterioration of units in above model where demand is pricesensitive. Some related articles are fromOuyang et al. (2009a, 2009b), Shah et al. (2009),
Shah et al. (2009), Shah et al. (2011), Shah et al. (2011) Shah and Patel (2012) etc. and their
cited references.
Deterioration is defined as the decay, spoilage, evaporation which loses the utility of a
production from the original one. Fruits and vegetables, pharmaceutical drugs, electronic
items, blood components, radioactive chemicals are some of the examples of deteriorating
items. Refer to review articles by Nahmias (1982),Raafat (1991), Shah and Shah (2000) and
Goyal and Giri (2001) on deteriorating inventory models. Yang and Wee (2000) discussed a
heuristic method to model a joint vendor-buyer inventory model for deteriorating items.
Yang and Wee (2005) modelled a win – win strategy for an integrated system of singlevendor single-buyer with deterioration. Shah et al. (2008) extended above model by
incorporating salvage value to the deteriorated items.
Shah et al. (2011) analyzed an integrated inventory policy with ‘two-part’ trade credit
when demand is quadratic. This type of demand is observed in the fashion market, seasonal
products, etc. However, the demand of above mentioned items including branded electronic
items decreases drastically after some time. Cheng et al. (2011) discussed trapezoidal
15
- 3. International Journal of Production Technology and Management (IJPTM), ISSN 0976 – 6383
(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
demand in which the demand pattern is linearly increasing with time upto some point of time,
becomes constant in some interval of time and thereafter it decreases exponentially. Shah
and Shah (2012) developed joint optimal inventory policies for two players of the supply
chain when demand is trapezoidal. They (2012) studied effect of deterioration in above
problem.
In this paper, the objective is to analyze an integrated inventory system for
deteriorating items for price-sensitive trapezoidal demand. The units in inventory of both the
players are subject to deterioration at a constant rate. The supplier offers a choice of cash
discount in unit purchase price if payment is settled earlier (specified); otherwise, the buyer
has to make the full payment by the allowable credit period. The joint total profit per unit
time is maximized with respect to payment tie, retail price, purchase quantity and number of
shipments from the supplier to the buyer. The algorithm is proposed to find best optimal
solution. A numerical example is given to validate the developed problem.. Sensitivity
analysis is carried out and managerial issues are discussed.
2. ASSUMPTIONS AND NOTATIONS
2.1 Assumptions
The model is developed with following assumptions.
1. The supply chain comprises of single-supplier single-buyer and for single item.
2. Shortages are not allowed. Lead-time is zero.
3. The demand rate is price-sensitive trapezoidal. (Appendix A)
4. The supplier offers a discount β ( 0 < β < 1 ) in the purchase price if the buyer pays by
time M1; otherwise full account is to be settled within allowable credit period M 2 ,
where M 2 > M1 ≥ 0. The offer of discount in unit purchase price from the supplier
will increase cash in-flow, thereby reducing the risk of cash flow shortage.
5. By offering a trade credit to the buyer, the supplier receives cash at a later date and
hence incurs an opportunity cost during the delivery and payment of the product. On
the buyer’s end, the buyer can generate revenue by selling the items and earning
interest by depositing it in an interest bearing account during this permissible delay
period. At the end of this period, the supplier charges to the buyer on the unsold
stock.
6. During the time [ M1 ,M 2 ] , a cash flexibility rate f sc is used to quantize the favor of
early cash income for the supplier.
7. The units in the inventory system of both the player deteriorate at a constant rate
θ (0 < θ < 1). The deteriorated units can neither be repaired nor replaced during the
period under review.
2.2 Notations
The mathematical concept is developed using following notations.
Ab
Buyer’s ordering cost per order ($/order)
As
Supplier’s set-up cost ($/setup)
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- 4. International Journal of Production Technology and Management (IJPTM), ISSN 0976 – 6383
(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
β
To increase cash inflow and reduce the risk of cash flow shortage, the supplier offers
a discount β ( 0 < β < 1 ) off the purchase price, if buyer settles the account within
time M1 , otherwise, full account is to be settled within an allowable credit period M 2 ;
Cs
v
P
where M 2 > M1 ≥ 0 .
Supplier’s unit manufacturing cost ($/unit)
Supplier’s unit sale price ($/unit)
Buyer’s unit sale price ($/unit) (a decision variable)
Note: P > v > (1 − β )v > Cs
Ib
Buyer’s carrying charge fraction per unit per year excluding interest charges
Is
I sp
Supplier’s carrying charge fraction per unit per year excluding interest charges
Supplier’s capital opportunity cost rate per unit /year
f sc
Supplier’s cash flexibility rate per unit/year
Ibe
Interest earned by the buyer during offered credit period M 2 per unit per year
Ibc
R
Buyer’s interest paid per unit per year
( = R( P,t )) Market demand rate (Appendix A), where a > 0 is scale demand,
0 < b1 ,b2 < 1 are the rates of change of demand, η > 1is price-elasticity mark-up and
γ
θ
T
n
Q
TBP
TSP
π
u1 and u2 are time points at which demand pattern changes. (Fig. 1)
The capacity utilization factor which is the ratio of the market demand rate to
production rate. γ < 1 is deterministic and constant.
Constant deterioration rate (0 < θ < 1) of units
Buyer’s cycle time (a decision variable)
Number of transfers from a supplier to buyer, n is a positive integer (a decision
variable)
Buyer’s procurement quantity during each transfer(a decision variable)
Buyer’s total profit per unit time
Supplier’s total profit per unit time
( = TSP + TBP ) Joint total profit of the integrated system per unit time
3. MATHEMATICAL MODEL
The buyer purchases Q units in each transfer. So the supplier produces in the batches
of size nQ and hoards set-up cost. The supplier tranships Q units manufactured initially and
thereafter, Q units are transported at T time units until the supplier’s inventory depletes to
zero.
The supplier offers the buyer a two-part trade credit period to encourage early
payment reducing risk of cash inflows. During the available credit period buyer earns
interest on the generated revenue. The aim is to maximize the joint profit per unit time of the
integrated system with respect to buyer’s selling price, payment time, procurement quantity
and the number of transfers from the supplier to the buyer.
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- 5. International Journal of Production Technology and Management (IJPTM), ISSN 0976 – 6383
(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
3.1 Supplier’s total profit per unit time
The supplier manufactures nQ units in batches whereQ is defined in Appendix B and
incurs a batch set-up cost As . The supplier’s set-up cost per unit time is As / ( nT ).
FollowingJoglekar (1988), the supplier’s inventory holding cost per unit time is
T
T
1
{Cs ( I s + I sp ) [(n − 1)(1 − γ ) + γ ]} ∫ I (t ) dt. (See Appendix C for computation of ∫ I( t )dt ).
T
0
0
(
)
The purchase cost of an item for the buyer is 1 − K j β v, whenaccount is settled at time
M j ; where j = 1, 2; K1 = 1, K 2 = 0. Hence, for the permissible delay period, the opportunity
1
cost per unit time is (1 − K j β )vI sp M j Q; where j = 1, 2; K1 = 1, K 2 = 0. When the buyer
T
pays at time M1 , the supplier can use the revenue (1 − β ) v to shrinka cash flow crisis during
time M 2 − M1 . This timely payment acquires gain at the cash flexibility rate per unit time
and is given by
1
( 1 − β )vf sc ( M 2 − M1 )Q. Hence, the supplier’s total profit per unit time is,
T
sales revenueplus the interest earned on the timely payment, minus total cost which is sum of
the manufacturing cost, set-up cost, inventory holding cost and opportunity cost,is given by
TSPj ( n ) =
( 1 − K j β )vQ
−
T
T
C Q A
1
− s − s − Cs ( I s + I sp )[( n − 1 )( 1 − γ ) + γ ] ∫ I( t )dt
T
nT T
0
( 1 − K j β )vI sp M j Q
T
{
+
}
( 1 − β )vf sc ( M 2 − M1 )Q
T
j = 1, 2; K1 = 1, K 2 = 0
(1)
3.2Buyer’s total profit per unit time
A
The ordering cost per unit time is b for each transfer of Q units. The buyer’s
purchase cost per unit time is
T
( 1 − K j β )vQ
T
and inventory holding cost per unit time is
T
(1 − K j β )vI b ∫ I (t ) dt
0
; where j = 1, 2; K1 = 1, K 2 = 0.
T
On the basis of choice of payment time of the buyer two cases may arise.
1. T < M j
2. T ≥ M j ; j = 1, 2 .
Case 1: T < M j (Fig.2)
18
- 6. International Journal of Production Technology and Management (IJPTM), ISSN 0976 – 6383
(IJPTM),
(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
Fig. 2: Interest earned when T < M j ; j =1,2
In this case, the buyer’s stock level depletes to zero before the permissible delay period. So,
the opportunity cost for the buyer is zero. The interest earned on the generated revenue per
T
PIbe ∫ t ⋅ R( P, t ) dt + Q ( M j − T )
0
; j = 1, 2. (See Appendix D for
unit time is given by
T
T
∫ t ⋅ R( P,t )dt ).
Hence, buyer’s total profit per unit timeis
0
T
( 1 − K j β )vI b ∫ I( t )dt
PQ ( 1 − K j β )vQ Ab
−
−
−
T
T
T
T
PIbe ∫ t ⋅ R( P,t )dt + Q ( M j − T )
Q(
0
+
T
TBPj1 ( P,T ) =
j = 1, 2; K1 = 1, K 2 = 0
(2)
Case 2: T ≥ M j ; j = 1,2 (Fig.3)
19
0
T
- 7. International Journal of Production Technology and Management (IJPTM), ISSN 0976 – 6383
(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
Fig. 3 Interestearned and charged when T ≥ M j ; j = 1, 2
In this case, the buyer’s permissible payment time offered by the supplierovers on or
before the cycle time. The interest earned per unit time by the buyer at the rate Ibe during
0, M j ; j = 1,2 is
Mj
1
PIbe ∫ t ⋅ R1 ( P, t ) dt
; 0 ≤ M j ≤ u1
T
0
Mj
Mj
1
1
u1
PIbe ∫ t ⋅ R( P, t ) dt = PIbe ∫ t ⋅ R1 ( P, t ) dt + ∫ t ⋅ R2 ( P, t ) dt
; u1 ≤ M j ≤ u2
T
u1
0
T
0
Mj
u
u
1 PI 1 t ⋅ R ( P, t ) dt + 2 t ⋅ R ( P, t ) dt +
∫
∫ t ⋅ R3 ( P, t ) dt ; u2 ≤ M j ≤ T
∫
1
2
T be
u1
u2
0
;where j = 1, 2
and interest paid per unit time at the rate Ibc during M j , T ; j = 1,2 is
20
- 8. International Journal of Production Technology and Management (IJPTM), ISSN 0976 – 6383
(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
u1
u2
T
1 (1 − K β )vI ∫ I (t ) dt + ∫ I (t ) dt + ∫ I (t ) dt ; M ≤ u ≤ T
j
bc
j
1
2
3
1
T
u1
u2
M j
T
T
1
1
u2
(1 − K j β )vI bc ∫ I (t ) dt = (1 − K j β )vI bc ∫ I 2 (t ) dt + ∫ I3 (t ) dt
; M j ≤ u2 ≤ T
T
Mj
u2
T
M j
T
1
; u2 ≤ M j ≤ T
(1 − K j β )vIbc ∫ I 3 (t ) dt
T
Mj
j = 1, 2; K1 = 1, K 2 = 0
Therefore, total profit of buyer per unit time is
(
(
(
)
)
)
TBPj 2 ( P, T ) : 0 ≤ M j ≤ u1
TBPj 2 ( P, T ) = TBPj 2 ( P, T ) : u1 ≤ M j ≤ u2
TBPj 2 ( P, T ) : u2 ≤ M j ≤ T ; j =1,2
(See
Appendix
(
(
Efor TBPj 2 ( P, T ) : 0 ≤ M j ≤ u1
(3)
)
,
(
TBPj 2 ( P,T ): u1 ≤ M j ≤ u2
)
,
)
TBPj 2 ( P, T ): u2 ≤ M j ≤ T ; j = 1,2 ).
The buyer’s total profit per unit time is
TBPj1 ( P, T ) ; T < M j
TBPj ( P, T ) =
TBPj 2 ( P, T ) ; T ≥ M j
(4)
3.3 Joint total profit per unit time
The joint profit per unit time of integrated system is given by
π j1 ( n, P, T ) ; T < M j
π j ( n, P, T ) =
π j 2 ( n, P, T ) ; T ≥ M j ; j = 1, 2
;where
(5)
π j1 (n, P, T ) = TSPj (n) + TBPj1 ( P, T )
π j 2 ( n, P, T ) = TSPj ( n) + TBPj 2 ( P, T ); j = 1, 2
The objective is to decide optimal values of discrete variable n and continuous
variables P and T , which maximize π j ( n,P,T ) , j = 1, 2 .We use following steps to maximize
the joint profit of the supply chain.
21
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4. COMPUTATIONAL PROCEDURE
To maximize joint profit, execute following steps:
Step 1: Assign parametric values in proper units to all model parameters.
Step 2: Set n = 1 .
Step 3: Solve
∂π j
∂P
= 0 and
∂π j
= 0 , j = 1, 2 simultaneously for P and T .
∂T
Step 4: Increment n by 1.
Step 5: Continue steps 3 and 4 until
π j ( n − 1, P ( n − 1) , T ( n − 1) ) ≤ π j ( n, P, T ) ≥ π j ( n + 1, P ( n + 1) , T ( n + 1) ) ; j = 1, 2
is satisfied.
Step 6: Stop.
The optimal value of ( n, P , T ) determines the optimal purchase quantity Q (Appendix
B) pertransfer for the buyer.
5. NUMERICAL EXAMPLE
Let us illustrate the developed model with the following numerical values to model
parameters.
a = 1,00,000, b1 = 7%, b2 = 5%, η = 1.5, u1 = 15 days, u2 = 45 days, γ = 0.9, C s = $ 2/unit,
v = $ 4.5/unit, As = $ 1000/set-up, Ab = $ 300/order, Is = 5% /unit/year, Ib = 8% /unit/year,
f sc = 17% /$/year and
I sp = 9% /$/year, I bc = 16%/$/year, I be = 12% /$/year and
θ = 0.12. The supplier offers buyerthe credit term ‘3/10 net 30’ means if buyer pays by 10
days then he will be offered 3% discount in the unit purchase price otherwise the buyer has to
settle the account due against purchases in 30 days.
From Table 1, we see that for 10-shipments, the buyer’s selling price is $ 6.59/unit
and cycle time is122 days maximizing joint total profit of $ 25319 of the integrated system.
The corresponding profit of the supplier is $ 13507 and that of buyer is $ 11812.Each transfer
is of 2018 units. Optimal payment time is 10 days in ‘3/10net 30’credit terms. The concavity
of joint total profit with respect to number of transfers, n and retail sale price, P are shown in
figures 3and 4 respectively. 3-D plot given in figure 5 for n = 10establishes the convavity of
the total joint profit. The variations in permissible delay periods; M 1 and M 2 are worked out
to study the changes in decisionvariable and total joint profit in Table 1. The profit gain is
compared with benchmark of no credit period.
22
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(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
Fig.4: Concavity of Joint Profit w.r.t. no. of Shipments (n)
Fig. 5: Concavity of Joint Profit w.r.t. Retail Price (P)
Fig. 6 Concavity of joint profit w.r.t. cycle time and retail price
23
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(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
The last column in table 1 represents percentage of profit gain which is calculated by the
Pr ofit with trade credit
formula
− 1 ×100%.
Pr ofit without trade credit
Table 1: Optimal Solution for Various Credit Terms
M1
(days)
M2
(days)
Optimal
Payment
Time
(days)
n
P
($)
T
(days)
Q
(units)
Profit
Profit (%)
Buyer
Supplier
Joint
Buyer
Supplier
Joint
0
0
0
11
6.53
112
1878
10336
14463
24800
-
-
-
0
30
30
11
6.37
111
1925
10130
15149
25279
-02.03
04.53
01.89
10
30
10
10
6.59
122
2018
11812
13507
25319
12.50
-07.08
02.05
20
30
20
10
6.66
123
2005
12021
13176
25197
14.02
-09.77
01.58
0
60
60
11
6.27
113
2005
10152
15638
25790
-01.81
07.51
03.84
10
60
60
11
6.41
116
1997
11597
14266
25863
10.87
-01.38
04.11
20
60
60
11
6.41
116
1995
11595
14140
25735
10.86
-02.28
03.63
The positive profit gain proves that players of the supply chain are advantageous
under two-level trade credit policy. It is observed that buyer entices to pay at early date in
net credit scenario of ‘3/10net 30’ with maximum profit.
In table 2, independent and joint decisions are compared under different credit terms.
It is seen that the offer of trade credit lowers retail price of the buyer and purchase of larger
order is encouraged. The retail price of the buyer is almost double in independent decision
compared to co-ordinated decision, while procurement quantity is halved. It is observed that
the buyer’s profit decreases and that of supplier increases, which forces buyer to be dominant
player in terms of making decision.Goyal (1976) favored the reallocation of profit for
attracting buyer to opt for joint decision in the supply chain. Reallocate profit of buyer and
supplier as follows:
TBP ( P,T )
Buyer’s profit = π ( n,P,T ) ×
TBP ( P,T ) + TSP ( n )
17534
=25319 ×
= 20288
( 17534 + 4348 )
TSP ( n )
Supplier’s profit = π ( n,P,T ) ×
TBP ( P,T ) + TSP ( n )
4348
=25319 ×
= 5031
( 17534 + 4348 )
The reallocated profits for buyer and supplier are exhibited in the last row of Table 2.
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(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
Table 2: Optimal solutions for different strategies
Credit
Term
Strategy
Independent
Joint
Cash on
delivery
Trade
Credit
3/10 net 30
Cash on
delivery
Trade
Credit
3/10 net 30
Optimal
Payment
Time
(days)
n
0
P
($)
T
(days)
R(P,T)
(units)
Q
(units)
13
14.15
168
198
10
13
13.72
167
0
11
6.53
10
10
6.59
Profit ($)
Buyer
Supplier
Joint
886
16991
4388
21379
206
925
17534
4348
21882
112
283
1878
10336
14463
24800
122
330
2018
11812
13507
25319
20288
5031
25319
Adjusted
The sensitivity analysis for model parameters is carried out by changing parameter as
-20%, -10%, 10%, 20%. The figure 6 suggests that joint total profit is very sensitive to
utilization factor and scale demand. This insights that the supplier should maintain production
and demand ratio nearly 1. The joint profit is very sensitive to buyer’s ordering cost. It
directs the buyer to place larger order and do saving in transportation cost. The jointprofit
decreases with increase in mark-up, supplier’s production cost, interest charged to the buyer,
supplier’s opportunity cost and deterioration rate of units in inventory systems of both the
players. The mark-up is controllable because it depends on economy of the business. The
supplier’s opportunity cost depends on when the buyer is willing to pay. However, supplier
can reduce production cost and deterioration rate by using modern machinery and latest
storage facilities. The joint profit increases linearly with time suggesting that supplier and
buyer are benefited when product enters into the system i.e. demand is in increasing phase.
25500
Joint Profit
25450
25400
25350
25300
25250
25200
25150
-20%
-10%
0%
10%
20%
Percentage Changes in Affecting Parameters
Fig. 7 Sensitivity Analysis for Model Parameters on Joint Profit
25
η
γ
Cs
v
As
Ab
Is
Ib
Isp
Ibc
Ibe
fsc
b1
b2
a
- 13. International Journal of Production Technology and Management (IJPTM), ISSN 0976 – 6383
(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
6. CONCLUSIONS
A co-ordinated supplier-buyer inventory policy is addressed when demand is pricesensitive trapezoidal and units in inventory deteriorate at a constant rate. The analysis is
focused on two payment scenarios namely ‘net credit’. The total joint profit is maximized
with respect to number of transfers from supplier to the buyer, optimal payment time, the
retail price and cycle time. To attract the buyerfor joint decision, reallocation of the profit
scheme is suggested. This result helps the buyer to make a decision between two
promotional incentives, viz. price discount and permissible delay payment. In future, one can
analyze integrated inventory system for different deterioration rates of units in buyer and
supplier’s warehouses. It is worth incorporating imperfect production processes and
optimizing production.
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Appendix A : Trapezoidal demand
The demand R( P,t ) is considered to be a trapezoidal type whose functional form is
f ( t ) P −η ; 0 ≤ t ≤ u
1
R ( P,t ) = R0 P −η ;u1 ≤ t ≤ u2
g ( t ) P −η ;u2 ≤ t ≤ T
where u1 is time point when the increasing demand function f ( t ) changes to constant demand
and u2 is the time point from where constant demand starts decreasing exponentially. In this
study, we take f (t ) to be liner in t, R0 = f ( u1 ) = g ( u2 ) and g ( t ) to be exponentially
decreasing in t . So the demand function is
R1 ( P, t ) ; 0 ≤ t ≤ u1
R ( P, t ) = R2 ( P, t ) ; u1 ≤ t ≤ u2
R3 ( P, t ) ; u2 ≤ t ≤ T
R1 ( P,t ) = a (1 + b1t ) P −η
−η
; where R2 ( P,t ) = a (1 + b1u1 ) P
−b t − u
R3 ( P,t ) = a (1 + b1u1 ) e 2 ( 2 ) P −η
Fig. 1 Price sensitive time dependent trapezoidal demand
29
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(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
Appendix B: Computation of inventory at any instant of time t and purchase quantity
Q
The inventory level in warehouse changes due to price-sensitive trapezoidal demand
and deterioration rate of units in the warehouse. The rate of change of inventory at any
instant of time t is governed by the differential equation
d I (t )
= − R ( P, t ) − θ I (t );0 ≤ t ≤ T
dt
with the initial condition I (T ) = 0 .
The solution of the differential equation is
I1 ( t ) ; 0 ≤ t ≤ u1
I ( t ) = I 2 ( t ) ; u1 ≤ t ≤ u2 here
I 3 ( t ) ; u2 ≤ t ≤ T
−η 1 + b1t b1 1 + b1u1 θ u1−θ t b1 θ u1−θ t
+ 2+
− 2 e +
e
aP −
θ
θ
θ
θ
θ u1−θ t
a(1 + b1u1 ) θ u2 −θ t
I1 (t ) = P −η
e
−e +
θ
−η a(1 + b1u1 )eb2u2 −b T +θ T −θ t − b u +θ u −θ t
2
−e 2 2 2
P
e
θ − b2
aP −η (1 + b1u1 )
−1 + eθ u2 −θ t +
θ
I 2 (t ) =
b2u2
P −η a (1 + b1u1 )e e − b2T +θ T −θ t − e −b2u2 +θ u2 −θ t
θ − b2
a (1 + b1u1 )eb2u2 − b2T +θ T −θ t − b2t
I 3 (t ) = P
−e
e
θ − b2
Using I ( 0 ) = Q, we get
−η
−η 1 b1 1 + b1u1 θu1 b1 θu1
e − 2 e +
aP − + 2 +
θ
θ
θ θ
a(1 + b1u1 ) θ u2 θu1
Q = P−η
e −e +
θ
−η a(1 + b1u1 )eb2u2 −b T +θT −b u +θ u
2
−e 2 2 2
P
e
θ − b2
30
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(Print), ISSN 0976 – 6391 (Online) Volume 4, Issue 3, September - December (2013), © IAEME
Appendix C: Computation of total inventory during [ 0,T ]
Total inventory during [ 0 ,T ] is given by
T
u1
u2
T
0
0
u1
u2
∫ I ( t ) dt = ∫ I1 ( t ) dt + ∫ I 2 ( t ) dt + ∫ I3 ( t ) dt
Appendix D: Computation of total demand
T
u1
u2
T
0
0
u1
u2
∫ t ⋅ R ( P,t ) dt = ∫ t ⋅ R ( P,t ) dt + ∫ t ⋅ R ( P,t ) dt + ∫ t ⋅ R ( P,t ) dt
Appendix E: Buyer’s total profit when T ≥ M j ; j = 1, 2
TBPj 2 ( ( P, T ) : 0 ≤ M j ≤ u1
) = PQ −
T
(1 − K j β )vQ
T
T
−
Ab 1
− (1 − K j β ) vI b ∫ I (t )dt
T T
0
u2
T
1
u1
(1 − K j β )vI bc ∫ I1 (t ) dt + ∫ I 2 (t ) dt + ∫ I 3 (t ) dt
−
T
u1
u2
M j
1
+ PIbe
T
Mj
∫ t ⋅ R ( P, t ) dt
1
0
; 0 ≤ M j ≤ u1
(1 − K j β )vQ
T
A
1
− b − 1 − K j β vIb ∫ I (t )dt
T
T T
0
u
T
1
2
− (1 − K j β )vIbc ∫ I 2 (t ) dt + ∫ I3 (t ) dt
T
u2
M j
Mj
u1
1
+ PIbe ∫ t ⋅ R1 ( P, t ) dt + ∫ t ⋅ R2 ( P, t ) dt
T
u1
0
; u1 ≤ M j ≤ u2
T
PQ (1 − K j β )vQ Ab 1
TBPj 2 ( P, T ) : u2 ≤ M j ≤ T =
−
−
− 1 − K j β vIb ∫ I (t )dt
T
T
T T
0
TBPj 2
( ( P, T ): u1 ≤ M j ≤ u2 ) = PQ −
T
(
(
)
(
−
)
)
T
1
(1 − K j β )vIbc ∫ I3 (t ) dt
T
M
j
Mj
u2
u1
1
∫ t ⋅ R1 ( P, t ) dt + ∫ t ⋅ R2 ( P, t ) dt + ∫ t ⋅ R3 ( P, t ) dt
+ PIbe 0
u1
u2
T
; u2 ≤ M j ≤ T
31