Incorporating Transportation Cost into Joint Economic Lot Size For Single Vendor-Buyer

Abstract — Considerable attention to coordinate the system between buyer and vendor has become an interesting issue to efficiently increase the performance of supply chain activities. Joint economic lot size model (JELS) has been introduced by many researchers as the spirit of coordinating the flow of material from the vendor to its downstream. As an inventory replenishment technique, JELS model is centered on reducing joint total cost of vendor and buyer by simultaneously deciding optimal delivery lot size, number of deliveries, and batch production lot. It is appropriate to take into account transportation costs as the function shipping weight and distance since delivery lot size has interrelated with shipping weight. Hence, this study constitutes an effort to develop the model of JELS by incorporating transportation cost. The solution procedure of the model is developed for solving two problems which are incapacitated and capacitated model. In addition, numerical examples were provided to illustrate the feasibility of the solution procedure in deriving optimal solution. The result presents central decision making which is useful for coordination and collaboration between vendor and buyer. Index Terms—Supply chain, Joint economic lot size