Combining an improved multi-delivery policy into a single-producer multi-retailer integrated inventory system with scrap in production

Operating in highly competitive global markets, management of the contemporary corporations constantly seeks to cut down various operating costs, such as inventory holding costs in the production units and their affiliated retailers. For the purpose of reducing stock holding cost, this paper combines an improved multi-delivery policy into a single-producer multi-retailer integrated inventory system with scrap in production. We extend a study by Chiu et al. (2013a) by augmenting an alternative n+1 product distribution policy to their integrated inventory system. An initial delivery of finished items is shipped to multiple retailers to meet demand during the production unit's uptime. After the remaining production lot is produced and screened, fixed quantity n installments of the finished products are delivered to retailers at a fixed time interval. With the help of a mathematical model along with Hessian matrix equations, the closed-form optimal operating policies for the proposed system are derived. Further, the study demonstrates, through a numerical example, significant savings in stock holding cost for both the production unit and retailers.