Professional Documents
Culture Documents
Min-Der Ko Mengru Tu
Department of Transportation Science Department of Transportation Science
National Taiwan Ocean University National Taiwan Ocean University
Keelung, Taiwan Keelung, Taiwan
e-mail: mdko@mail.ntou.edu.tw e-mail: tuarthur@email.ntou.edu.tw
Tzu-Chen Ho
Department of Transportation Science
National Taiwan Ocean University
Keelung, Taiwan
e-mail: g00168051@gmail.com
AbstractUnder the pressures of global competition, response sourcing strategies of firms to risk, shortage cost, demand
to changes in evolving international transport from processing uncertainty, salvage value, and capacity reserve options.
and marketing system. Enterprises are forced to pace their To meet the challenges of maintaining good quality and
supply according to the requirements of customers. Many perfect screening process, rework process becomes a rescue
enterprises attempt to manage their supply chain e ectively. to compensate for the imperfections present in the
The international transportation of the products, which production system. The imperfect rework is an unavoidable
involved in valuable goods, may cause the happening of problem to the supplier chain.
transportation risk. Therefore, this study explores the Based on Pan AC and Liao CJ [6] applied JIT concept to
feasibility of applying an integrated inventory model with the
the traditional EOQ model. They provide the effect of
consideration of incorporating production programs and
frequent shipments for a total cost and small lot size.
maintenance to an imperfect process. We also consider the
transportation risk between manufacturers, suppliers and
Ramasesh [8] separated the total order cost of the EOQ
retailers, building a two- echelon inventory and transportation model into the cost of placing a contact order with multiple
risk model. small lots shipments. T. C. E. Cheng [9] recommended an
EOQ model with demand-dependent unit production cost
Keywords-imperfect product; transportation risk; inventory; and imperfect production processes, formulated the problem
supply chain as a geometric programing. L.-Y. Ouyang, C.-H. Ho, and
C.-H. Su [1] proposed a model with adjustable production
I. INTRODUCTION rate and imperfect product under the condition of
In globalized economy, product life cycle is reducing permissible delay in payments. Ming-Cheng Lo and
continuously, customer demands are changing fast, and lead Ming-Feng Yang [3] develop an improved inventory model
time for response is decreasing. Also globally distributed to help the enterprises to advance their profit increasing and
sourcing, production and transport operations are vulnerable cost reduction in a single vendor single-buyer environment,
to many types of risks due to an increasing dynamic and adjustable production rate, and imperfect reworking process
structural complexity of today's supply chain networks. under permissible delay in payments. In M.F. Yang and Y.
In this paper, we focus on transportation risk and Lin [4] the main target of this research is consideration of
imperfect product. Because of the uncertain transportation incorporating production programs and maintenance to an
delays, it faces the risk that the product might decay or imperfect process, to build an integrated inventory model
deteriorate during the transportation process. In Yong-bo with the issues of repair. Ming-Feng Yang, Yi Lin, Li Hsing
XIAO, Jian CHEN, Xiao-lin XU [11], the optimal initial Ho, and Wei Feng Kao [5] point out that uncertain lead time
quantity, the optimal wholesale price, and the optimal and defective products have much to do with inventory and
retailing price are studied under the assumption that both the service level.
decision makers are risk-neutral. Lian Qi, Kangbok Lee [2] In our research, based on Ming et al [3] and Ouyang et al
show how to use transportation to make supply chain risk [1] models and data, we construct a two-echelon imperfect
mitigations, to satisfy the cost-saving. In Rajesh Kumar product inventory model considering transportation risks.
Singh [7], the manufacturer is risk-neutral and so his sole
II. NOTATIONS AND ASSUMPTION
objective is to maximize his expected profit. Yasemin
Merzifonluoglu [10] builds the special case of normal The decision variables are set as follows:
distribution and risk-neutral objective, and developed x n = The total number of shipments per production run
optimality properties. It also examines the sensitivity of the from the vendor to the buyer, a positive integer.
during a production run and each shipment may carry C. The Expected Joint Total Profit
transportation risk.
We make use of the imperfect quality items and Hence, the joint total annual profit function,
transportation risk consideration to extend the integrated JTP(n,P,Q),as follow:
(3)
We replace Q=DL and D=D(p)= into the joint
(10)
total annual profit function
(11)
Determining the optimal selling price by taking (10)
equal to zero, we obtain
(12)
Step7: Set EJTP (n*,P*,L*)= (n-1,P[n-1],L[n-1]), so
(n*,P*,L*) is an optimal solution in this case, go
(7) to next case and repeat step 2-7.
Step8: After obtained each optimal solution in cases,
(8)
choose the best EJTP. The highest value is the
Consequently, EJTP (n,P,L) is strongly concave on L for most optimal solution in the end. Consequently,
fixed n and p. So there exists a unique replenishment time the buyers optimal order quantity per order is
interval value of L, which maximizes EJTP (n,P,L). The Q*= D(P*)L*.
value of L can be found by equating (7) to be zero, and we
obtain IV. NUMERICAL EXAMPLE
Consider an inventory situation with the following
parametric values partially adopted in Ouyang et al. [1], and
(9) Ming-Cheng Lo, Ming-Feng Yang. [3]
(i) Scaling factor =100000.
Determination of the optimal price P for any given n (ii) Index of price sensitivity =1.5.
and L (iii) Ratio between the production rate and the demand rate
Solving for the optimal selling price P*, by taking the =1.5.
first-order partial derivative of (4), we obtain
(iv) The unit purchasing cost for the buyer =$4.5/unit.
(v) The unit production cost for the vendor =$2.2/unit.
(vi) Setup cost per production run for the vendor
=$350/order.
(vii) Ordering cost per order for the buyer =$10/order.
(viii) Vendors unit holding cost =0.045.
(ix) Buyers unit holding cost =0.111.
(x) Percentage of defective items =0.04.
(xi) The unit inspecting cost w=$0.5/unit.
(xii) Repair cost per item of imperfect quality for the
vendor =$2/unit. Figure 2. The relationship between profit and n.
(xiii) The probability of risk, low risk R=0.3, medium risk
R=0.6, high risk R=0.9. In the Table I, II, III, the joint profit increase follow by
The above solution algorithm is applied to each case and increasing the number of n. It can be seen clearly in Fig.2,
we choose the best case which has the best joint profit in the when n is increased to a certain number, the joint profit will
fixed values of risk value R. For example, in the low risk, no longer increase. The result that is when the number of
medium risk, high risk value (R=0.3, 0.6, 0.9), we calculate n increased, the higher risk may happen during shipments.
n=1 to 10 with R=0.3, 0.6, 0.9 in computer, and we get 30 As Table I, II, III show, in low risk of R = 0.3, the best
results with different numerical data. We choose the case profit is on n = 9, profit = 22211.77; in medium risk of R =
with the best joint profit as the optimal solution. 0.6, the best profit is on n = 8, profit = 22158.55; and in the
high risk time R = 0.9, respectively the best profit is on n =
TABLE I. OPTIMAL SOLUTIONS IN LOW RISK R=0.3 7, profit = 22109.37.
n profit P D Q nQ V. CONCLUSIONS
1 21704.32 8.87 3782.39 2384.38 2384.38
2 21990.21 8.75 3858.44 1795.39 3590.78 In this research, we assume that in the vendors
3 22098.50 8.71 3887.31 1536.12 4608.37 production process, the imperfect quality items are
4 22152.37 8.69 3901.69 1381.40 5525.61 reworked immediately and meantime, the vendor must bear
5 22181.95 8.68 3909.58 1274.94 6374.73 the repair cost. Also we assume that there are transportation
6 22198.54 8.67 3914.01 1195.32 7171.94 risk in each transportation and the buyer bear the
7 22207.38 8.67 3916.38 1132.42 7926.94 transportation risk and cost. Here, we can derive the
8 22211.25 8.66 3917.41 1080.78 8646.26 expected joint total annual profit function.
9 22211.77 8.66 3917.55 1037.18 9334.63
By analyzing this function, we can obtain optimal
10 22209.93 8.67 3917.06 999.56 9995.67
solution for the replenishment time interval and develop a
simple solution procedure to determine the buyers optimal
TABLE II. OPTIMAL SOLUTIONS IN MEDIUM RISK R=0.6
selling price, order quantity, and the number of shipments
n profit P D Q nQ per production run from the vendor to the buyer.
1 21680.74 8.88 3776.13 2424.09 2424.09 According to the results of the study, the value will
2 21958.47 8.77 3849.98 1846.44 3692.88 affect the size of the joint profit, resulting in reduced
3 22061.28 8.72 3877.38 1593.06 4779.19 demand for smaller delivery batches. Since the
4 22110.96 8.70 3890.64 1441.70 5766.83 transportation risk is inevitable, we can build the inventory
5 22137.12 8.69 3897.61 1337.21 6686.09 model, targeting for different risks under the vendor's and
6 22150.77 8.69 3901.26 1258.71 7552.28
buyer's profit considerations.
7 22157.02 8.69 3902.93 1196.38 8374.67
8 22158.55 8.69 3903.34 1144.95 9159.61
To be closer to reality, in addition to transportation risk,
9 22156.92 8.69 3902.90 1101.30 9911.76 we can consider other scenarios for the models such as
10 22153.08 8.69 3901.88 1063.47 10634.75 production, delivery process of other risk value, or consider
the multi-product the optimal production quantity and the
TABLE III. OPTIMAL SOLUTIONS IN HIGH RISK R=0.9 maximum joint profit under transportation risk.
n profit P D Q nQ REFERENCES
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