A Minimax Distribution Free Procedure for an Integrated Inventory Model with Defective Goods and Stochastic Lead Time Demand

Abstract

This paper investigates the production/inventory policy in an integrated vendor-buyer inventory system with defective goods in the buyer’s arrival order lot. We assume that short-ages are allowed and partially backlogged on the buyer’s side, and that the lead time demand distribution is unknown but has given finite first and second moments. The objective is to optimize the buyer’s order quantity, reorder point and the number of shipments from vendor to buyer simultaneously in the proposed model. Since the lead time demand distribution is unknown, we apply the minimax distribution-free procedure to solve this problem. An algorithm is developed to obtain the optimal production/inventory strategy. Furthermore, numerical example is provided to illustrate the solution procedure and sensitivity analysis of the optimal solution with respect to major parameters is carried out.

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