A Distributor-Retailer Inventory Model for Pharmaceutical Supply Chain with Expiry Cost

Abstract

This paper presents an integrated inventory model involving a distributor and a retailer is proposed in the paper. The retailer manages inventories using periodic review policy and orders products from distributor to fulfill the customer's demand. The distributor also manages its inventory periodically, orders products from supplier, and delivers products to fulfill the retailer's demand. The model developed in this paper explores the problem of expiry cost. We assume that the demand is stochastic and follows a normal distribution. The model's objective is to determine the optimum value of the review period, safety stock, and the number of deliveries from distributor to retailer which can maximize the joint total profit. The model is formulated using vendor-managed inventory (VMI) concept where the ordering cost and transportation cost handled by distributor. Furthermore, an algorithm is suggested to find the optimal solution and a numerical example is presented to illustrate the application of the proposed model.