Determining the optimal policy between stockout and replenishment for deteriorating item in the integrated inventory model

In a competitive market environment, it is important to consider the perspectives of both the buyer and supplier. The purpose of this study is to consider an integrated inventory model for a deteriorating item in a shortage environment and to develop an optimal joint total cost from both perspectives. The model assumes that when a shortage occurs, the buyer can allow for either stockout or replenishment by an alternative supplier. A numerical example of this model shows that the integrated approach results in an impressive cost reduction when compared with any independent decision. A sensitivity analysis is performed to compare the stockout and replenishment policies.