Collaborative vendor–buyer inventory system with declining market

Due to rapid technological innovation, shortening product life cycle and severe competition, product demand rate will decrease. In this study, we develop a collaborative vendor–buyer inventory system with exponentially decreasing market, finite horizon and constant replenishment interval. The result of this study shows an impressive cost reduction as a result of collaboration. The result is even more significant for products with decreasing demand. High-tech products (e.g., microcomputer chip), which is being substituted by another, has the characteristic of declining market demand with negatively exponential distribution. A numerical example and sensitivity analysis are provided to illustrate the theory and to derive the percentage total cost reduction of the collaborative vendor–buyer system.