The optimal production and shipment policy for the single-vendor single-buyer integrated production-inventory problem

This paper considers the problem of a vendor (manufacturer) supplying a pro duct to a buyer (customer). The vendor manufactures the product in batches at a finite rate and ships the output to the buyer. The buyer then consumes the product at a fixed rate. The objective is to minimize the mean total c ost per unit time of manufacturing set-up, stock transfer and stock holding . Previously published work has concentrated on finding optimal solutions f rom within given classes of policy. We derive the structure of the globally -optimal solution, set out an algorithm for obtaining it and illustrate the process with two numerical examples.