An integrated multi‐supplier, multi‐buyer and dual vendors inventory model with stochastic demand

In this paper, we consider a single‐period integrated inventory model in which n buyers face stochastic demand and source from two vendors (primary and secondary). The primary vendor is cheaper but unreliable in the sense that it may not fulfil buyers' order quantities completely. The secondary vendor is reliable but capacity constrained. The buyers cannot order more than the quantities reserved by them in advance. The objective of this study is to determine the optimal order and reserve quantities of the buyers by maximising the expected collective profit of the integrated system. We derive the optimal solution of the model in closed form for homogeneous buyers. We show by numerical experiments that the resulting profit of the proposed model is higher than that of the model with a single vendor. We also examine the sensitivity of key model‐parameters on the optimal decisions.