A Vendor-Buyers Integrated Inventory Model Involving Quality Improvement Investment in a Supply Chain

Today's supply chain environment requires a new spirit of cooperation between the buyer and the vendor. So the characteristics of current manufacturing systems are consistent high quality, small lot sizes, frequent delivery, and close supplier ties. Just-in-time (JIT) production is an integrated set of activities to achieve those objects by adopting continuous quality improvement and developing a long-term partnership. This paper presents the optimum joint economic lot size in a case where multiple buyers are demanding one type of item from a single vendor by summing the ordering/setup cost, holding cost and quality improvement investment. This model is useful particularly for integrated inventory systems where the vendor and the buyer form a strategic alliance for profit sharing.

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