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European Journal of Operational Research 188 (2008) 811825


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Production, Manufacturing and Logistics

Synchronization in the single-manufacturer


multi-buyer integrated inventory supply chain
M.A. Hoque *

Department of Mathematics, Faculty of Science, University Brunei Darussalam, Brunei Darussalam

Received 24 November 2005; accepted 12 May 2007


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.

Keywords: Inventory; Single-manufacturer; Multi-buyer; Convex

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.

2. Formulation of the models

2.1. Assumptions and notations

In developing the models we assume:

(i) deterministic constant demand and production rates;


(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.

We use the following notations.


For the manufacturer

D Annual rate of demand;


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

For the ith buyeri 1; 2; :::; m;


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.

2.2. Model I (batch transfer just after its processing is nished)

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 :

Total cost = cost of the manufacturer + cost of the buyers.


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

and substituting for zi = Diz/D and simplifying one obtains


 
n Di z2 nn  1 1 1 Di z2
  ;
2 D2 2 D P D

so the inventory cost per year for the ith buyer is


 
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

2.2.1. Solution procedure


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

and the corresponding total cost is


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

For a given z, TC is convex in n (for real n) and hence


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

2.3. Model II (a batch transfer after every z/D units of time)

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

The average cost of set-up, transportation and ordering per year is


" #
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

2.3.1. Solution procedure


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

along with the associated total cost


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

Assume that zi Di z=D; kzi Di kz=D; . . . ; k e1 zi Di k e1 z=Di.e.


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

The inventory cost for the buyer i per year is


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

2.4.1. Solution procedure


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

along with the corresponding total cost as


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.

3. A sensitivity analysis of the solution techniques

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

4.1. Numerical example 1

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

A comparative study of the results is given in Table 2.


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.

4.2. Numerical example 2

Let us consider the data in Table 3


X
m
S 200; h 3:00; P 3250; D Di 1300:
i1

Comparative results are given in Table 4.


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.

4.3. Numerical example 3

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

See Tables 6 and 7.

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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