Optimizing a Two-Warehouse Single Vendor-Buyer Inventory Model with Varying Demand and Varying Holding Costs Under Trade Credit and Imperfect Production

This paper presents a comprehensive inventory model for a single-vendor, single-buyer supply chain functioning within a two-warehouse system, incorporating crucial factors such as trade credit, stock-dependent demand, and variable holding costs. The model addresses the challenges posed by imperfect production processes, enabling an examination of how production defects influence total costs. Demand is considered stock-dependent, reflecting the relationship between inventory levels and market demand. The model includes a trade credit policy, where the vendor offers the buyer a credit period for payment, promoting trust in their business interaction. A more realistic approach is taken by applying stock-dependent holding costs exclusively to the rented warehouse, aligning with typical cost structures observed in practice. The aim of the model is to identify optimal inventory policies that minimize total costs, including setup, holding, transportation, screening, warranty, and purchasing costs. Furthermore, the interest earned during the credit period is deducted from the total cost to account for the effect of the trade credit policy. A detailed cost function is derived, with its convexity demonstrated through graphical analysis to manage the non-linear behavior of the function. Finally, sensitivity analysis is carried out to assess the influence of key parameters on system performance, providing valuable insights into cost reduction opportunities and operational improvements.