Vol. 2, Issue 1, Part B (2016)

Abstract
The objective of this work is to develop an inventory model considering budget capacity constraints and to study the effect of coordination on the performance of the system. A collaborative inventory model is created to get the optimal results of lot size, setup cost, and the total number of shipments from vendor to buyer in a production run, to minimize the joint expected total cost. The requirement rate of the end customer is estimated to be responsive to the selling cost. The inventory model is developed to get optimal values of the selling cost, item order quantity and number of consignments. Mathematical modeling concept is used to obtain the profit functions of vendor as well as buyer in joint form & iterative algorithm is used to solve the inventory model. It is found that under joint optimization, the requirement rate and the stock profit are higher than their values under independent optimization, especially for the more price sensitive requirement.