An optimal policy for an integrated vendor-buyer model with two warehouses under vendor's capacity constraint

Abstract

The paper considers an integrated single-vendor single-buyer supply chain model in which the vendor is assumed to be capacity constrained. The vendor can keep the excess units beyond the capacity of its own warehouse (OW) in a rented warehouse (RW) whose holding cost is higher than that of the own warehouse. The vendor delivers the buyer's order quantity in a number of equal shipments. The proposed integrated model is formulated and some of its characteristics are studied analytically. Considering the vendor's capacity as a control variable, the optimal decisions of the model are obtained for a numerical example. Sensitivity analysis is also carried out to measure the impact of key model-parameters on the outcome of the model.