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www.elsevier.com/locate/ejor

multi-buyer integrated inventory supply chain

M.A. Hoque *

Available online 23 May 2007

Abstract

Considerable attention has previously been given to the single-vendor single-buyer integrated inventory problem, but

there has been very little work on the integrated single-vendor multi-buyer case. Although the Joint Replenishment Prob-

lem applies in that case, it has not dealt with delivering a single product to multiple buyers when the set-up and inventory

costs to the vendor are included. Assuming a close relationship between a manufacturer and buyers for a costless way of

benet sharing, three models are developed, two of which transfer with equal batches (part of a lot) and the third with

unequal batches of the product. Optimal solution techniques are presented, a sensitivity analysis of the techniques is car-

ried out, and several numerical problems are solved to support the analytical ndings. A comparative study of the results

shows that the supply by unequal batches performs better. This study also highlights the limitation of methods used in

obtaining the least minimal total cost in the single-vendor single-buyer scenario, and the benet of an integrated inventory

is also discussed.

2007 Elsevier B.V. All rights reserved.

1. Introduction

A single manufacturer multi-buyer supply chain involves a manufacturer producing a product at a nite

rate and then supplying it to one or more buyers, to satisfy their xed rates of demand. This may be viewed

as a particular case of the Joint Replenishment Problem (JRP) i.e. the problem of coordinating the replen-

ishment of a group of items from a single supplier to multi-buyers. However, the JRP does not account for

set-up and inventory costs incurred by the vendor, in delivering a product to multiple buyers. If the vendor

buyer inventory problem is treated independently, the optimal solution for one buyer is unacceptable to the

others for various reasons, so researchers have considered vendorbuyer integrated inventory systems. The

problem is to minimize the integrated average annual total cost of the inventory, the set-up, the ordering

and transportation to supply the product to the buyers by the manufacturer. During processing and supply

*

Tel.: +673 2463001x1705; fax: +673 2461502.

E-mail address: hoque@fos.ubd.edu.bn

0377-2217/$ - see front matter 2007 Elsevier B.V. All rights reserved.

doi:10.1016/j.ejor.2007.05.019

812 M.A. Hoque / European Journal of Operational Research 188 (2008) 811825

of the product, inventory accumulates with the manufacturer and also with each of the buyers in this system.

Delivery of the product in small lots reduces the inventory cost but increases set-up, ordering and transpor-

tation cost. On the other hand, delivery in larger lots increases inventory cost but reduces the other costs, and

scheduling interference results because of scarce storage capacity at both the manufacturer and the buyers.

Synchronization of the production ow is essential for the control of inventory and hence for minimizing

the total average cost. The production ow can be synchronized by transferring the lot in a number of ship-

ments (equal or unequal), some of which may take place before processing of the total lot by the manufac-

turer. This type of synchronization discussed in the literature for the single-vendor single-buyer case seems to

be complex, and is yet to be extended to the single-manufacturer multi-buyer case. Therefore, we need to

research on a single-manufacturer multi-buyer synchronized production ow in obtaining minimum average

annual total cost.

One of the keys to successful e-business and successful implementation of JIT production in the modern

supply chain environment is integration of the vendorbuyers inventory system. Both vendors and buyers

may benet from establishing close inter-relationships (Goyal and Srinivasan, 1992; Thomas and Grin,

1996; Martinich, 1997; Hill, 1999; Pan and Yang, 2002). Hill (1999), Hill and Omar (2006), Ben-Daya

et al. (2006), Chang et al. (2006), Zhou and Wang (2007), We and Chung (2007), Ertogral et al. (2007), Zanoni

and Zavanella (2007), and Boute et al. (2007) have considered integrated inventory for the single-vendor sin-

gle-buyer case. Although others have studied the JRP considerably (cf. Hoque (2006), Chan et al. (2006), Bay-

indir et al. (2006), Porras and Dekker (2006), Moon and Cha (2006) for detail), they neglected vendor set-up

and inventory costs, which were however considered by Joglekar and Tharthare (1990), Lu (1995) and Viswa-

nathan and Piplani (2001). Although it may be assumed that the system benets generated by a joint economic

lot size policy can be shared among the buyer(s) and the seller in a costless way, Joglekar and Tharthare (1990)

argued that negotiated benet sharing is never costless. They emphasized that it requires information sharing,

communication, trust building, travel, and executive time and consequently they proposed an alternative

approach to minimize the total inventory and ordering costs for the vendor and buyer(s), which they claimed

to be individually responsible and rational and so would require no further negotiation between the seller and

the buyer(s) for benet sharing. Their approach charged the buyers the cost of shipping and handling associ-

ated with their respective order, by an appropriate reduction in the unit selling price. Joglekar and Tharthare

(1990) showed that their approach reduced the system costs as much as the joint economic lot size approach

available in the literature at that time. However, ignoring the suggested costs of benet sharing by the joint

economic lot size approach, Goyal and Srinivasan (1992) demonstrated an initial error in recognition of

the unit selling price charged by the vendor, and showed a lower total joint relevant cost for a new example

with a modied way of dening the joint economic lot size as compared to Joglekar and Tharthare (1990). In

addition, they argued that the ability of the vendor to entice the buyer to pay order handling and processing

costs depends on the relationship between them. Lu (1995) addressed the joint replenishment of items from a

viewpoint of integrated inventory, having considered the major and minor set-up costs along with a xed cost.

Multiple items, restricted selling of each item to a particular buyer, and its cycle time as an integer multiple of

a basic cycle time were considered. However, this type of model may be restrictive in practice in respect of

selling an item to more than one buyer, and also lead to larger cycle times for items with less demand, creating

more inventories. These practical factors have led the present author to solve the problem of delivering a single

product from a single manufacturer to multiple buyers with a minimum total cost of ordering, set-up, trans-

portation and inventory holding.

Viswanathan and Piplani (2001) proposed a one-vendor multi-buyer supply chain for a single product, to

analyze the benet of coordinating the supply chain through common replenishment time periods. They

assumed that the vendor does not keep any inventory, and orders the required quantity from an outside sup-

plier whenever an order from a buyer is received so without considering integrated inventory, the supplier

species common replenishment periods and oers a price discount to entice the buyers. Kim et al. (2006) and

Abdul-Jalbar et al. (2006) also considered the single vendor multi-buyer case. Kim et al. (2006) proposed an

analytical model to eectively integrate and synchronize the procurement of a raw material, the production of

multiple items utilizing the raw material, and their delivery to multiple retailers. The objective was to nd the

production sequences of items, the common production cycle length, and the delivery frequencies and quan-

tities that minimized the average total cost. In Abdul-Jalbar et al. (2006), the demand of an item at each retai-

M.A. Hoque / European Journal of Operational Research 188 (2008) 811825 813

ler was assumed to be known and satised by the item stored at the warehouse, and the goal was to determine

single-cycle policies that minimize the average total cost. However, these single vendor multi-buyer models

have not dealt with integrated inventory when a single product is produced by the vendor and delivered to

multiple buyers.

This paper considers integrated inventory in three models for the supply of an item to more than one

buyer, after its production by a manufacturer. In the rst two models, all batches forwarded are of exactly

the same size but the timing of their shipment is dierent. In the rst of these, the manufacturer transfers

a batch to a buyer as soon as its processing is nished, whereas in the second a batch is transferred to a buyer

as soon as the previously sent batch to the buyer is nished so the rst two models represent a push and

pull system of inventory delivery, respectively. Under the rst model, the buyers average inventory and

hence inventory-carrying costs are substantial while the manufacturers inventory cost is smaller, whereas

for the second model it is just opposite. In the third model considered here, the next shipment size increases

by the ratio of the production rate and the sum of the demand rates of all of the buyers. Thus the time of

meeting a buyers demand with a batch equals the time of processing the next batch at the manufacturer,

and the next batch is transferred to a buyer when the previous one has been nished, so this is a compromise

between the push and pull system. The intention of this paper is to nd an optimal solution technique for

each of these three models, and through a sensitivity analysis explore for the best outcome. A comparative

study of the solutions of several numerical problems is also carried out, to validate the analytical ndings

and to examine the limitations of the methods used. In addition, the benet of integration shall be discussed

from another perspective.

The organization of the remainder of the paper is as follows: Section 2 deals with assumptions and nota-

tions, and then it presents the models and their optimal solution techniques. A sensitivity analysis of the solu-

tion techniques is given in Section 3, and Section 4 contains solutions of several numerical problems and their

comparative studies. Conclusion is drawn in Section 5.

(ii) each buyer estimates individual demand, holding and ordering costs under various cost factors and

informs the manufacturer;

(iii) the concerned parties share the benets of coordination based on negotiation in a costless way;

(iv) there is no backlogging or deliberate planning for shortages;

(v) the lot and batch sizes are real numbers;

(vi) both the manufacturer and the buyers have enough storage capacity to accommodate the required

inventory;

(vii) the transport equipment has enough capacity to transport any of the batches to a buyer; and

(viii) set-up and transportation times are insignicant.

For the manufacturer

P Annual rate of production (P > D and k = P/D);

h Inventory carrying cost per item per year;

S Production set up cost per lot;

z The smallest batch size;

n Number of equal or unequal sized batches in a lot;

814 M.A. Hoque / European Journal of Operational Research 188 (2008) 811825

Pm

Di = Annual rate of demand (D i1 Di ;

hi = Inventory carrying cost per item per year;

si = Cost of placing an order;

Ti = Cost of transporting a batch from the manufacturer to the buyer i.

Suppose thePmanufacturer transfers the batch z to meet the demands of all of the buyers, and that zi = Di z/

m

D so that z i1 zi : Note that 1 < P/D implies

z < P =Di Di =Dz ) z=P < zi =Di :

Cost of the manufacturer = inventory carrying cost + set-up cost.

The manufacturer transfers each of n equal sized batches of the lot of total size z to the buyers, as soon as its

processing is nished, so the inventory for the manufacturer per cycle is nz2 =2P :

Note that the batch zi = Di z/D meets the demand for the time

zi =Di Di z=DDi z=D:

Since the lot is transferred by n batches of size z, the cycle time is given by nz/D and hence the total cost of

inventory and set ups for the manufacturer per year is

2

nz h D Dhz DS

S :

2P nz 2P nz

Fig. 1 shows the inventory pattern for the buyer i for a production cycle.

Note that the batch zi = Di z/D meets the demand for the time

zi =Di Di z=DDi z=D:

Since the lot is transferred by n batches of size z, the cycle time is given by nz/D and hence the total cost of

inventory and set-up for the manufacturer per year is

2

nz h D Dhz DS

S :

2P nz 2P nz

Fig. 1 shows the inventory pattern for the buyer i for a production cycle.

For the ith buyer, the average inventory per cycle is given by

1 zi zi z

n zi zi f1 2 3 n 1g

2 Di Di P

zi

zi

zi

z/P Time

zi/ Di

Fig. 1. The inventory pattern for the ith buyer for a production cycle

M.A. Hoque / European Journal of Operational Research 188 (2008) 811825 815

n Di z2 nn 1 1 1 Di z2

;

2 D2 2 D P D

Di zhi n 1 1 1

Di hi z:

2D 2 D P

Ordering plus transportation cost per year for the buyer i is D(si + nTi)/nz.

Thus the average annual total cost of inventory, transportation and set-up for the buyer i, is

Di zhi n 1 1 1

Di hi z Dsi nT i =nz

2D 2 D P

and hence the total cost TC of inventory, transportation, set-up and ordering per year for the integrated inven-

tory system is as follows:

" X # " ( Pm )#

Dh 1 1 1 m

z 1 S i1 si X m

TC n 1 D i hi D Ti : 1

P D D P i1

2 z n i1

For a given n, the total cost TC is convex in z, so equating the partial derivative of TC with respect to z to

zero yields

v

Pm

u Pm

u S si

u 2D i1

i1 T i

u n

z t Pm

1 1 Pm 2

Dh Di hi

P

i1

D

n 1 D

P i1 D i h i

s

Pm Pm

S i1 si Xm Dh i1 Di hi 1 1 Xm

C 2D Ti n 1 Di hi : 2a

n i1 P D D P i1

s

Pm

1 2D S i1 si

n 1 1 Pm : 3

z D

P i1 Di hi

One can calculate the minimum total cost using Microsoft Excel as follows.

First calculate

X X Pm m

m m

Dh i1 Di hi 1 1 X

S si ; T i; and D i hi :

i1 i1

P D D P i1

Then input n = 1 into a cell of the left hand column, and calculate the total cost using formula (2a) in another

cell but in the same row. Increase n by 1 successively at each step and input into the next cell of the left hand

column, and re-calculate the total cost in the corresponding cell until the present total cost is greater than or

equal to the previous one. Note that one can obtain the values of z and zi using the minimal value of n in (2)

and zi Di z=D respectively, and that starting with n = 1 and repeatedly using (2) and (3) the minimal cost

solution for real values of z and n can be obtained. The minimum cost so obtained, along with the associated

values of n and z, is the required minimal total cost solution.

816 M.A. Hoque / European Journal of Operational Research 188 (2008) 811825

Suppose the manufacturer transfers the batch z to meet the demand for all buyers, so the demand of the

buyer i is met for the time zi =Di Di z=D=Di z=D and the manufacturer transfers the next batch z to

the buyers after every z/D units of time. Since there are n batches in a lot, the inventory holding cost per cycle

run for all buyers is

X m Xm

1 z 1 Di z z

n zi hi n hi :

i1

2 D i1

2 D D

Since there are D/nz cycles/year, the inventory holding cost per year for all buyers is

m

D X 1 Di z z z Xm

n hi D i hi :

nz i 2 D D 2D i1

Following the inventory pattern for the vendor in Pan and Yang (2002), one obtains the average inventory

cost for the manufacturer per year

z D 2D

n 1 1 h:

2 P P

" #

D Xm

S si nT i :

nz i1

Thus after simplication the total average cost of the set-up, transportation and ordering, and inventory hold-

ing per year is

Pm

" ( Pm )#

Dh D i h i 1 1 z 1 S s i

Xm

i1 n 1 Dh D i1

Ti : 4

P D D P 2 z n i1

For a given n, the total cost function of this model is convex in z and for given z, it is also convex in n (for

n real). By equating the partially dierentiated values of this function with respect to z and n, respectively to

zero, one obtains

v

Pm

u Pm

u S si

u 2D i1

i1 T i

u n

z t Pm

1 1 5

Dh Di hi

P

i1

D

n 1 D

P

Dh

s

Pm Pm

S i1 si Xm Dh i1 Di hi 1 1

C 2D Ti n 1 Dh : 5a

n i1 P D D P

s

Pm

1 2D S i1 si

n : 6

z 1 D=P h

The minimal cost solution of this model can also be obtained by using Microsoft Excel on (5a) in the same way

as in the case of Model I. Starting with n = 1 and repeatedly using (5) and (6), the minimal total cost solution

for real values of z and n can be obtained.

M.A. Hoque / European Journal of Operational Research 188 (2008) 811825 817

2.4. Model III (lot transfer with batches of sizes z; kz; . . . k n1 z

X

m

k j1 zi Di k j1 z=D so that k j1 z k j1 zi for j 1; 2; . . . ; n:

i1

Suppose the manufacturer transfers the rst batch of size z to the buyers. Note that

zi zi ) Di z=D zi ;

) P =DDi z=P zi ) kz=P zi =Di :

In the same way, one can show that k 2 z=P kzi =Di etc. and generally

k j z=P k j1 zi =Di k j1 z=D for j 1; 2; . . . ; n:

Thus the production time of the batch k n z equals the time of meeting the demand by the previous batch k n1 z,

where n is a positive integer. The manufacturer releases the batches of sizes z; kz; k 2 z; . . . ; k n1 z, and their sum

equals the lot size Q so that

k1

z Q: 7

kn 1

Express the work-in-process (WIP) inventory for the manufacturer as

1 z 1 kz 1 k2z 1 k n1 z z2 k 2n 1

z kz k 2 z k n1 z :

2 P 2 P 2 P 2 P 2P k 2 1

Since there are D/Q cycles per year, the WIP inventory cost for the manufacturer per year

D z2 k 2n 1 h k 2n 1 2

2 h z since P =D k:

Q 2P k 1 2kQ k 2 1

The buyer i receives the batches of sizes zi ; kzi ; k 2 zi ; . . . ; k n1 zi and hence its inventory per cycle is

1 zi 1 kzi 1 2 k 2 zi 1 k n1 zi

zi kzi k zi k n1 zi

2 Di 2 Di 2 Di 2 Di

" 2 2 2 2 #

1 Di Di Di 2 Di n1 Di z2 k 2n 1

z kz k z k z :

2Di D D D D 2D2 k 2 1

D Di z2 k 2n 1 Di hi k 2n 1 2

h i z:

Q 2D2 k 2 1 2DQ k 2 1

Thus the total integrated inventory cost per year for the system is

z2 k 2n 1 h 1 Xm

2 D h

i i

2Q k 1 k D i1

and the total cost of set up, ordering and transportation per year for the system is

Dh Xm i

S s i nT i :

Q i1

After substituting the value of Q from (7), the total cost per year for the integrated system may be expressed as

" # " #

z k n 1 Dh 1 X m

k1 D Xm Xm

TC D i hi n S si n Ti : 8

2 k 1 P D i1 k 1 z i1 i1

818 M.A. Hoque / European Journal of Operational Research 188 (2008) 811825

For a given n, the total cost function is convex in z. So equating the partially dierentiated value of this

function with respect to z to zero, one obtains

v

u

u2D k1 S P m

si nT i

u kn 1

u i1

z u 9

t kn 1 Dh P m

k1 P

D i h i =D

i1

s

k 1 kn 1 n Xm oDh Xm

C 2D n S si nT i Di hi =D : 9a

k 1 k1 i1 P i1

Again, equating the partially dierentiated value of the total cost function with respect to n (treating n as real)

to zero, one has

Lk n 12 k n ;

Pm

Dk 1 i1 T i

where L 2 P :

Q k 1 ln k h=k 1=D mi1 Di hi

p

2L1 4L1

Setting x k n , one pobtains x 2L

ln x

implying n ln k

.

2L1 4L1

Note that 2L p

P 1 ) L 6 0; contradicting that L > 0.

2L1 4L1

Thus x 2L

< 1, leading to ln x < 0 and hence ln x= ln k < 0, since k > 1. Observe that

p

2L1 4L1

x 2L

> 1; otherwise leads to a contradiction that

p

1 4L 1 6 0:

Therefore,

p

ln 2L 1 4L 1 =2L

n : 10

ln k

Thus for given Q, the total cost function has a single turning point at this value of n. One can easily verify that

the 2nd partial derivative of this cost function with respect to n is positive and hence for a given Q, the total

cost function has the characteristic of convexity in n. The technique to nd the minimal cost solution of this

model is the same as the solution technique of Model I.

Let us rst consider the solution techniques of Model I and Model II. For the same value of n, let the min-

Pm total cost (2a) of Model I is less than or equal to the minimal total cost (5a) of Model II. Then

imal

Pi1

m Pm which is true when hi 6 h for all i (as in Hill and Omar, 2006), since

Di hi 6 Dh,

i1 Di hi 6 i1 Di h Dh:

Thus if the values of n are the same in both the solutions, the obtained minimal total cost of Model I is

always less than or equal to the minimal total cost of Model II in this case. This is also true if the minimal

total costs of Model I and Model II occur at dierent values of n. If otherwise, let the minimal total costs

of Model I and Model II occur at n n1 and n n2 n1 6 n2 respectively, and the former minimal cost is

greater than the latter one. Then for the same value of n n2 , the minimal total cost of Model I is less than

or equal to the minimal total cost of Model II. Hence the total cost of Model I at n n1 is not minimal, which

is a contradiction. Thus if hi 6 h for all i, the minimal total cost of Model I is always less than or equal to that

of Model II. If hi > h for all i (as in Hill, 1999), by similar arguments, it can be shown that the minimal total

cost of Model II is always less than that of Model I.

M.A. Hoque / European Journal of Operational Research 188 (2008) 811825 819

Now compare the solution technique of Model III with the solution techniques of Models I and Model II.

For the same value of n, let the minimal total cost (2a) of Model I be greater than the minimal total cost (9a) of

Model III. Then we have

Pm Pm

k 1 k n 1 1 n 1 1=D 1=P i1 Di hi n 1 1 1=k i1 Di hi =D k 1 kn 1 1

n > Pm Pm )

k1 k 1 n n Dh Di hi n Dh Di hi k 1 kn 1 n

P

i1

D P

i1

D

n1 1 1=k

> :

n

1 PmDh

1

Di hi k

i1

Pm

If hi > h; i: e: Dh= i1 Di hi < 1, then

n

k 1 k 1 1 n 1 1 1=k n 1 k 1 k n 1 1 k 1 n 1 nk n 2

n > ) n >

k1 k 1 n n 1 1=k n k1 k 1 n k1 n nk 1

) nk n n > nk n 2k n1 k n2 k 1 ) nk n n

> nk n nk n1 nk 2 nk n 2k n1 k n2 k 1 ) n

> k n1 k n2 k 1; a contradiction for n 1; 2; 3 . . . :

Thus, if hi > h, then for the same value of n, the minimal total cost provided by Model III is always less than

or equal to that of Model I. Let the minimal total costs of Model I and Model III occur at dierent values of n,

say at n0 and n00 , respectively. If the total cost of Model I is less, the total cost of Model III at n n0 is less than

or equal to the total cost of the Model I at the same value of n, which contradicts that the minimal total cost of

Model III occurs at n n00 . Thus if hi > h, the minimal total cost of Model III is always less than the minimal

total cost of Model I. Observe that when hi > h, the minimal total cost of each of Model II and Model III is

always less than the minimal cost of Model I, so we need to compare the minimal total costs of Model II and

Model III. It is shown in Appendix A that either Pm of the minimal total costs of Model II and Model III could be

the least, based on the values of k and Dh= i1 Di hi . However, an extensive numerical study on three numer-

ical problems (with data given in the next section) reveals that for a xed h there exists a set of approximate

upper limits on the values of hi , so that model III always gives a lower minimal total cost within these limits.

For an increase in any one of the limiting values, Model II always provides lower minimal total cost.

Again, for hi 6 h suppose the minimal total costs of Model II and Model III occur for the same values of n,

and that the cost of Model II is greater. Then we have

k 1 kn 1 1 n 1 1 1=k

> Pm :

k 1 kn 1 n n Di hi

1=k i1Dh

X

m

k 1 kn 1 1 n 1 1 1=k

Since hi 6 h i:e: Di hi =Dh 6 1; then P

i1

k 1 kn 1 n n 1=k 1

kn 1 1 k1 n1

) n P :

k 1 n k1 n

) n P k n1 k n2 k 1; a contradiction for n 1; 2; 3; . . . ;

so for the same value of n the total cost provided by Model III is always less than or equal to that of Model II.

In this case, it can be shown as before that the minimal total cost of Model III is less than or equal to the

minimal total cost of Model II, even the minimal costs of these models occur at dierent values of n. Thus

the minimal total cost of each of Model I and Model III is always less than or equal to the minimal total cost

of Model II in this case. Following the discussion in Appendix A, it can also be shown that P either of the min-

imal total costs of Model I and Model III could be the least, based on the values of k and mi1 Di hi =Dh: We

solve several numerical example problems in the next section, to see whether their solutions comply with the

ndings of our sensitivity analysis. From a numerical study as in the previous case it is found that, for a set of

xed his, there exists an approximate upper limit on h so that Model III always gives lower minimal total cost

within this limit. For an increase in the limiting value, Model I always provides lower minimal total cost.

820 M.A. Hoque / European Journal of Operational Research 188 (2008) 811825

Thus for the studied numerical problems, it seems that Model III always gives a lower minimal total cost

for a reasonable dierence in the values of h and hi. The limiting values of h and hi, along with total cost found

by the concerned method, are shown in Appendix B. In both cases, it is found that as the production rate

closes to the total demand the number of batches in shifting the lot increases, but Model III always gives lower

minimal total cost.

4. Numerical examples

Let us rst solve a numerical problem of supplying an item to 5 buyers (articially created) by a manufac-

turer, following the solution techniques developed in this paper. The data are given in Table 1

X

5

S 300; h 0:20; P 1500; D Di 970:

i1

For n real, the minimal total costs 481.85 (for n 4:10) and 420.57 (for n = 4.82) obtained respectively for

Model II and Model III are less than the minimal total cost 495.05 (for n = 3.75) obtained for Model I, con-

sistent with the ndings (in the case hi > h, for all i) of the sensitivity analysis in the previous section. This is

also true for the minimal total costs shown in Table 2 with integral values of n, but it may not be true gen-

erally. For n = 4.10 and n = 4.82, approximate boundary values of k have been found to be 6.6 and 5.63,

respectively, both of which are greater than k = 1500/970 = 1.55, and hence the least minimal total cost for

Model III (based on the analysis of the previous section). The cost reduction for Model III over Model II

is 61.06 of about 12.67% is considerable, and is due to the reduction in the inventory cost of the manufacturer.

Observe that the inventory cost of the manufacturer obtained in Model II is about 1.91 times higher than that

obtained in Model III, consistent with the assumption of inventory accumulation at the manufacturer in

Model II and a batch transfer just after nishing its processing in Model III. The total cost for each buyer

in Model III is higher than the corresponding cost in Model II, so the cost reduction by Model III over Model

Table 1

Data for a single-manufacturer 5-buyer problem

Purchaser I si Di hi Ti

1 25 200 0.22 25

2 15 150 0.24 20

3 25 225 0.25 18

4 30 230 0.23 25

5 30 165 0.21 15

Table 2

A comparative study of the results for a single-manufacturer 5-buyer problem

Cost component Model I Model II Model III

Lot size, batch sizes and its no. 3277.56, 819.39, 4 3369.56, 842.39, 4 4333.15, z 299:91; kz; . . . ; k 4 z,

5

Set up cost of the manufacturer 88.79 86.36 67.16

Inventory cost of the 52.98 143.77 75.47

manufacturer

Ordering costs of the buyers 7.40, 4.44, 7.40, 8.88, 8.88 7.20, 4.32, 7.20, 8.64, 8.64 5.60, 3.36, 5.60, 6.72, 6.72

Inventory costs of the buyers 38.28, 31.32, 48.94, 46.03, 30.15 19.11, 15.63, 24.42, 22.97, 15.05 26.53, 21.71, 33.92, 31.90, 20.89

Transportation cost 29.60, 23.68, 21.31, 29.60, 17.76 28.79, 23.03, 20.73, 28.79, 17.27 27.98, 22.39, 20.15, 27.98, 16.79

Total cost of the manufacturer 141.77 230.13 142.63

Total cost of the buyers 75.28, 59.44, 77.65, 84.51, 56.79 55.10, 42.98, 52.36, 60.40, 40.96 60.11, 47.46, 59.67, 66.60, 44.40

Total cost 495.44 481.93 420.87

M.A. Hoque / European Journal of Operational Research 188 (2008) 811825 821

II is mainly due to the reduction in the cost to the manufacturer. For this numerical example, Model III gives

the least cost and seems to be the better one, but there is no guarantee that it will always provide the least cost.

Note that optimal solutions of this numerical example produce large lot sizes requiring large times of produc-

tion, which is impractical. To see the viability of the models in that respect, let us consider another numerical

example.

X

m

S 200; h 3:00; P 3250; D Di 1300:

i1

For this numerical problem, the minimal total cost provided in Model II and Model III are less than the

minimal total cost provided in Model I, consistent with our analysis (when hi > h in the previous section, with

the minimal cost obtained in Model III is the least. The approximate boundary values of k for n = 2.11 and

2.57 are found to be 40 and 29, respectively. And k = 3250/1300 = 2.5 lies on the left-hand-side of the bound-

ary value of 29 that supports the least minimal total cost obtained by the Model III. Here the lot sizes and

their production times seem to be reasonable. However, to produce a reasonable lot size in a reasonable time,

one may impose a time constraint on the time of meeting the demand by a lot Q at the manufacturer as

follows:

Q

6 t; t is the time limit; that is; Q 6 Dt:

D

Each of the models can be solved by the previously described solution technique, but also now taking this con-

straint into account.

A solution was found to a single-vendor single-buyer numerical problem for dierent sets of values of h, hi

that was originally solved by Hill (1999) and Hill and Omar (2006), and a comparative study was carried out.

The data are

S 400; P 3200; D D1 1000; s1 0; T 1 25; g 300:

Comparative results for dierent values of h and h1 are given in Table 5.

Table 3

Data for a single-manufacturer 5-purchaser problem

Purchaser I si Di hi Ti

1 25 300 3.10 25

2 15 250 3.20 20

3 25 200 3.15 18

4 30 225 3.25 25

5 30 325 3.10 15

Table 4

Comparative results for a single-manufacturer 5-buyer problem

Lot size Optimal no. of batches Optimal cost No. of batches (integer) Batch sizes Cost (for int. n)

By Model I 664.96 2.02 2076.17 2 2 332.48 2076.21

By Model II 669.90 2.11 2059.71 2 2 334.9 2060.91

Model III 881.65 2.57 1860.15 3 90.43, 226.07,565.18 1869.67

822 M.A. Hoque / European Journal of Operational Research 188 (2008) 811825

Table 5

Comparative results for a single-vendor single-buyer problem.

h, h1 Lot, batch sizes and cost by

Model II Model III Hill (1999) Hill and Omar (2006)

4 5 491.44; 551.7; 5 110.34; 522.46; 36.18, 115.78, 557.80; 23.64, 75.63,

4 122.86; 1903..29 370.50; 1818.22 2 229.27; 1792.77

2034.84

4 7 399.3; 3 133.10; 547.74; 6 91.29; 454.77; 31.49, 100.77, 541.53; 31.10, 99.53,

2379.16 2008.32 322.46; 2088.97 3 136.96; 1938.97

5 4 538.12; 478.68; 553.84; 38.35, 122.73, 553.84; 38.35, 122.73,

4 134.53; 3 159.56; 392.75; 1715.30 392.75; 1715.30

1858.26 1984.58

7 4 552.70; 404.52; 525.21; 36.37, 116.39, 559.77; 22.60, 72.33, 231.44,

5 110.54; 2 202.26; 372.45; 1809.11 233.44; 1786.44

1899.90 2224.86

In obtaining each of these solutions, the minimal total cost was rst computed for the minimal real value of

n, and then the approximate boundary value of k was found for the n that was consistent with the analysis in

the previous section. Note that for integral values of n the minimal total cost provided by Model II is less than

that of Model III when h 4; h1 7; and the minimal total costs obtained for real values of n by Models I, II

and III were 2376.73 (for n = 3.4), 2007.65 (n = 5.65) and 2086.22 (for n = 3.27), respectively. Thus the min-

imal total costs provided by Model II and Model III are less than that of Model I, and the minimal total cost

obtained by Model II is less than the minimal total cost of Model III. The approximate boundary values of k

calculated for n = 3.27 and 5.65 were found to be 3 and 2.16, respectively. The given value of k is 3200/

1000 = 3.2, which is greater than these approximate boundary values, and hence the least minimal total cost

by Model II.

Let us now compare the least minimal total cost obtained by our methods with that of Hill (1999) and Hill

and Omar (2006). In the rst case, the least minimal total cost 1818.22 obtained by Model III is about 1.42%

higher than the cost 1792.77 in Hill (1999), whereas the least minimal total cost 2008.32 obtained by Model II

is 3.58% higher than the cost 1938.97 obtained by Hill (1999). For the third case, the minimal total cost

obtained by Model III is the same as in Hill and Omar (2006), but for the fourth the least minimal total cost

obtained by Model III is1.27% higher than the cost in Hill and Omar (2006). These cost reductions are due to

the shifting of a lot by equal or unequal sized batches, or both.

5. Conclusion

This paper deals with the development of three models for supplying a single product from a single man-

ufacturer to multiple buyers, by synchronizing the production ow with equally sized batch transfer in the rst

two and unequal batches transfer in the third. In all cases, the transportation of a batch incurs a transporta-

tion cost. Optimal solution techniques of the models were presented, and a sensitivity analysis of each of them

carried out.

All three models are generally found to be useful for reducing integrated inventory. Model I and Model II

provide the highest minimal total cost (for real n) when h 6 hi and h P hi , respectively. The least minimal total

cost is restricted to Model II and Model III in the rst case, whereas in the second it is conned to Model I and

Model III, but there is no guaranteed method for providing the least minimal cost. Several numerical prob-

lems were considered, and Model III was found to provide the least minimal total cost in all cases except for

Model II at the higher ratio hi/h = 1.75. From an extensive numerical study, Model III was found to give a

lower minimal cost for a reasonable dierence between h and hi. However, as the solution techniques are sim-

ple, one can easily nd the minimal total cost solutions for each of the two methods, so the manufacturer and

M.A. Hoque / European Journal of Operational Research 188 (2008) 811825 823

the buyers can negotiate for a satisfactory distribution of the prot in a costless way, although in practice

benet sharing may not be costless. For instance, wherever inventory accumulates more costly storage space

may be needed, and the negotiation process may include paper work, communication, transportation, etc.

However, a close relationship between manufacturer and buyers should benet them all. Model II and Model

III will be useful where suppliers are reliable (a manufacturer supplies when the need arises), especially in

developed countries. Model I provides an opportunity for the buyers to store the item in advance, which could

be especially helpful in developing or underdeveloped countries, where transportation complexities arise due

to various factors. Further, the benet of an integrated inventory system should encourage the manufacturers

and buyers to establish a close relationship, with the models helping to provide a better environment for con-

trolling inventory and therefore cheaper products.

Several single-vendor single-buyer numerical problems which were originally considered by Hill (1999) and

Hill and Omar (2006) were solved, and a comparative study has been carried out with them. The least minimal

total cost was found to be slightly higher than those they obtained. However, it is to be noted that the present

models are developed for the single-vendor multi-buyer case, which are also able to solve the single-vendor

single-buyer problem, whereas Hill (1999) and Hill and Omar (2006) are restricted to the solution of a sin-

gle-vendor single-buyer problem only and the models presented here are more general. Besides, since no

appropriate solution technique for an integrated single-vendor multi-buyer case is available in the literature,

the present study should create scope for further research on the topic. The solution procedures are also much

simpler. The model developed by Hill (1999) involves transferring an entire lot with either equal and/or

unequal shipment sizes, and it was dicult to justify the convexity of the total cost in n (the number of total

shipment sizes) because of the complex dependency of m (number of unequal shipment sizes) on n. However,

the Models I and II here involve transferring the lot with equal shipment sizes, and Model III with unequal

shipment sizes. The simplicity of the solution techniques creates scope for combining these models to provide

better synchronization of the production ow and so minimize the total cost. One may also extend their tech-

nique to a single-vendor multi-buyer case, and then carry out a comparative study with our methods. The

author intends to address these matters in the near future.

Acknowledgement

The author is grateful to the referees for their valuable comments and suggestions.

Appendix A. A comparative study of the minimal total costs obtained by models II and III

For the case hi P h, let the minimal total costs of Model II and Model III occur at the same value of n,

where the rst costs less than the second. This implies that

k 1 kn 1 1 n 1 1 1=k

> Pm :

k 1 kn 1 n n Di hi

1=k i1Dh

Pm Pm n1

Note that i1 Di hi =Dh P 1. If i1 Di hi =Dh 1, such that from the above inequality ) n > k

n2

k k 1; a contradiction for n 1; 2; 3 . . ., since k > 1.

Thus if hi h; for all i, the minimal total costP obtained by Model III is always less than or equal to (for

nP= 1) that of Model II. For any hi > h; mi1 Di hi =Dh > 1. Let us consider a particular value of

m

i1 Di hi =Dh P 1, say 3/2. Then setting n = 2, it is found that the minimal total cost obtained by Model

III for all values of k less than 5.702 is always less than the minimal total cost of Model II; and for all values

of k greater than or equal to 5.702, the minimal cost obtained for Model III is higher than the same for Model

II, so 5.702 can be considered to be the approximate boundary value of k for n = 2. This boundary value of k

has been found for increasing integral values of n, and as the value of n increases this boundary value of k

824 M.A. Hoque / European Journal of Operational Research 188 (2008) 811825

decreases. For example, for n = 3, 4, 5 theP approximate boundary values of k are found to be 3.999, 3.213,

m

2.76, respectively. For dierent values of i1 Di hi =Dh greater than 1, approximate boundary values of k

are found for dierent positive real values of n. In all cases, there was a decreasing Pmtrend of the approximate

boundary value of k for increasing positive real values of n. Thus for any value of i1 Di hi =Dh greater than 1,

we assume that the approximate boundary value of k decreases as the positive value of n increases. Conse-

quently, Model III gives the minimal total cost if k P =D is less than this boundary value; but otherwise

model II does.

Now for a given numerical problem where hi > h, suppose the minimal values of nare found for Model III

and Model II, say at n* and n, respectively. If n n , then the approximate boundary value of k will be the

same and the known k P =D will lie either at the left-hand side or at the right-hand side of this boundary

value. If it lies to the left, then the minimal total cost obtained for Model III will be less than that of Model

II and vice versa. For the greater one n > n , this boundary value of k (say, k1) will be smaller than the

boundary value of k (say, k2) for the other, implying k 1 < k 2 . If the known value of k lies to the left-hand side

of k1, according to the discussion above the minimal total cost obtained for Model III will be less than that for

Model II. If the known value of k lies to the right-hand side of k2, the minimal total cost obtained for Model II

will be smaller.

It is claimed that given k cannot belongs to k 1 ; k 2 for the least total minimal cost. If k belongs to k 1 ; k 2 ,

then the minimal total cost obtained by Model III at n n will be greater than that obtained for Model II

atn n . The minimal total cost for Model II at n n must be greater than the minimal total cost of the same

at n n , since the model II has the minimal cost at n n . Thus, the minimal total cost obtained for the

model II is smaller than the minimal cost obtained for Model III. Again, if k belongs to k 1 ; k 2 , the minimal

total cost obtained by Model II at n n will be higher than that obtained by Model III at n n . The min-

imal total cost for Model III at n n must be higher than that at n n , since Model III has the minimal

total cost n n . Thus the minimal total cost for Model III is smaller, which is a contradiction to the previous

conclusion and justies the claim. However, if n < n , the non-existence of given k in k 2 ; k 1 for the least min-

imal total cost cannot be guaranteed, although it has been found to be true for the single-vendor single-buyer

numerical problem in the rst two cases.

Appendix B. Upper limits on inventory costs for lower minimal total cost by Model III

Table 6

A set of upper limits on hi along with total costs for a xed h

Numerical example Fixed value of h Limiting values of Total cost by

h1 h2 h3 h4 h5 Model II Model III

1 0.2 0.60 0.63 0.68 0.67 0.63 616.64 616.61

2 3.0 6.5 6.6 6.8 6.7 6.5 2502.78 2502.78

3 4 5.99 1957.14 1956.93

Table 7

An upper limit on h along with total costs for a set of xed values of hi

Numerical example Limiting value of h Fixed values of Total cost by

h1 h2 h3 h4 h5 Model I Model III

1 1.02 0.22 0.24 0.25 0.23 0.21 661.60 616.23

2 12.61 3.10 3.20 3.15 3.25 3.10 2565.70 2565.67

3 10.37 4.00 1957.17 1957.02

M.A. Hoque / European Journal of Operational Research 188 (2008) 811825 825

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