An integrated vendor–buyer inventory model with quality improvement and lead time reduction

The success of the Japanese in the employment of just-in-time (JIT) production has received a great deal of attention in the past two decades. The underlying goal of JIT is to eliminate wastes, which can be achieved through various efforts such as shortening lead time and improving quality. Recently, Yang and Pan have studied the effects of lead time reduction and quality improvement investment on an integrated inventory model. The objective of this study is to extend Yang and Pan's model by allowing for shortages and using the reorder point as a decision variable. That is, this article develops an integrated inventory model which jointly determines the optimal order quantity, reorder point, process quality, lead time and the frequency of deliveries simultaneously. Analytical results that characterize the exact, optimal policy for the problem described above are devised to develop efficient and optimal computational procedures. Furthermore, a numerical example is given to illustrate the results.