A vendor-buyer integrated inventory system with vendor's capacity constraint

This article considers a joint economic lot sizing problem (JELP) of a single‐vendor single‐buyer inventory system in which the vendor is capacity constrained. The proposed model is formulated assuming that whenever the vendor's on‐hand inventory level reaches the maximum attainable capacity, (s)he follows a modified consignment stock policy until the production lot is completed. A solution algorithm is provided and a numerical example is taken to illustrate the developed model. Sensitivity analysis is performed to examine the impact of key model‐parameters on the optimal solution.