An optimal policy for a single-vendor and a single-buyer integrated system with setup cost reduction and process-quality improvement

The single-vendor single-buyer integrated production inventory system has been an object of study for a long time, but little is known about the effect of investing in reducing setup cost reduction and process-quality improvement for an integrated inventory system in which the products are sold with free minimal repair warranty. The purpose of this article is to minimise the integrated cost by optimising simultaneously the number of shipments and the shipment quantity, the setup cost, and the process quality. An efficient algorithm procedure is proposed for determining the optimal decision variables. A numerical example is presented to illustrate the results of the proposed models graphically. Sensitivity analysis of the model with respect to key parameters of the system is carried out. The paper shows that the proposed integrated model can result in significant savings in the integrated cost.