Integration of Inventory Decisions and Carrier Mode Selection in a Two-echelon Supply Chain with Deteriorating Items

Abstract

This study investigates a two-echelon supply chain consisting of a vendor and a buyer with deteriorating items. The deterioration rate of product is constant. To transport products from vendor to buyer, two carrier's modes with different traveling time and cost are considered. The difference between the present study and the previous ones, is that the deterioration of product continues during the traveling time, which depends on the carrier's mode to ship batches from vendor to buyer. So the structure of existing models changes. The purpose of this study, is to minimize the total cost of buyer and vendor, and to obtain the number of shipments, the vendor's production cycle time, and the carrier's type. We propose an algorithm to solve the independent model of buyer and vendor with the affirmation of cost functions' convexity, and a heuristic algorithm to solve the integrated model. Sensitivity analysis is also carried out to examine the sensitivity of decision variables and the performance measure of supply chain. The proposed integrated model can produce lower cost rather than an independent decision by vendor and buyer.