Collaboration has evolved as a key component of many modern supply chains, supporting the competitive advantages of companies in a range of operations from manufacturing to sales. With this viewpoint, the present paper develops an integrated inventory model in which manufacturing is carried out at the vendor’s end so as to fulfill demand at the buyer’s doorway. As the production process is presumed to be imperfect it shifts from an “in-control” state to “out-of-control” state at any random time and yields non-conforming items. The vendor uses regular preventive maintenance actions for the efficient operation of the production system and offers free minimal repair warranty on the products sold to the buyer. Along with preventive maintenance actions the vendor also uses the rework process and restoration process as effective steps towards minimizing the imperfections of the production system. The proposed model solves the non-linear cost minimization problem through a generalized reduced gradient method by using Lingo 15.0. The aim is to jointly optimize the order size, backorder size and the number of shipments in order to minimize the integrated cost of the vendor and the buyer. Numerical analysis and sensitivity analysis is performed on key parameters that render some important supervisory insights.
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