An optimal integrated vendor-buyer inventory policy under conditions of order-processing time reduction and permissible delay in payments

This study deals with the order-processing cost reduction and permissible delay in payments problem in the single-vendor single-buyer integrated inventory model. We consider that the order-processing cost can be reduced at an extra crashing cost, which varies with the reduction in the order-processing time length . In addition, the buyer is allowed a fixed time period before they settle the account with the vendor. The objective of this study is to minimize the annual integrated total cost by optimizing simultaneously the delivery interval, the number of deliveries per order and the investment cost in order-processing time. An integrated total cost function is derived, and an algorithm procedure is proposed for determining the optimal decision variables. Finally, numerical examples are provided to illustrate the algorithm procedure.