Joint Vendor-buyer Policy in JIT Manufacturing

In this study, we show that a co-operative batching policy, based on cost information exchange between the vendor and the buyer, can reduce total cost significantly in the just-in-time (JIT) environment. We examine the impact of such co-operation on total costs, including ordering, set-up, transportation and inventory holding costs for a long-term supply relationship. The study shows that joint optimization of both the vendor and the buyer's operations does not necessarily result in a common lot size. We further examine the sensitivity of the resulting cost savings due to the exchange of cost information to changes in the relevant operating parameters.