A sustainable supply chain under VMI-CS agreement with withdrawal policies for imperfect items

Abstract

Abstract. Supply Chain (SC) coordination, quality requirements, and environmental issues are the main areas of interest within the field of inventory management. Few studies have integrated these concepts into an inventory problem despite its overwhelming necessity. In this direction, this paper deals with a vendor-buyer SC under the Vendor-Managed Inventory with Consignment Stock (VMI-CS) agreement. According to the agreement, the vendor bears the buyer's financial holding cost in return for the storage of products in the buyer's warehouse. Further, each shipment involves a random fraction of repairable items, which need to be withdrawn from the inventory system. Unlike the existing literature, when repair policy is evaluated not to be profitable, these items can either be salvaged or scrapped in the present problem. In other words, this study aims at providing a decision support model to find the optimal withdrawal policy as a joint quality and lot-sizing policy. To fulfill sustainability criteria, carbon emissions are incorporated into the total cost of SC by considering carbon tax and cap-and-trade regulation. The optimum solution is found through an analytical algorithm. Finally, a numerical study is conducted to illustrate the applicability of the models and gain managerial insights. The results show that the performance of VMI-CS for all withdrawal policies is superior to traditional mechanism, but its cost-saving sharing has to improve. In addition, the sensitivity analyzes reveal that the fraction of imperfect items greatly affects the optimal withdrawal policy. Finally, adopting carbon regulations does not seriously affect the optimal withdrawal policy and inventory decisions but causes a relatively much increase in the total cost.