Applications of production and delivery concept to vendor-buyer coordination problem

In this paper we present a method to obtain the solution of an integrated production/delivery quantity model when production rate goes to infinity. These socalled two-stage lot-size models determine delivery quantity and number of delivery from the perspective of the supply chain with the objective of minimizing total operating costs. The total cost includes setup cost, ordering cost, inventory carrying cost, and transportation cost that is a fitted function of delivery quantity, using actual shipping rate data. The focus of this study is on assessing the deviation of these policies from the optimal solution. We expose some of them and illustrate the use of the method with numerical examples. Both mathematical analysis and computational study have shown the significant cost savings by implementing the proposed approach into the supply chain network optimization process.