Optimal Joint Vendor-Buyer Inventory Strategy for Deteriorating Items with Salvage Value

This study develops a joint optimal inventory strategy for both the buyer and the vendor when the expired stocks have salvage value, and are subject to constant rate of deterioration. It is shown numerically that the joint approach results in a significant cost reduction when compared with an individual decision by the buyer. We also observed that although the joint total cost decreases, the buyer’s cost increases due to larger order. To motivate the buyer to continue to replenish larger order quantity, a permissible delay in payments is offered by the vendor to the buyer. A negotiation factor is introduced to share the benefits of both the parties; the vendor and the buyer.