A joint economic lot size model with price and environmentally sensitive demand

Abstract

This paper presents a joint economic lot size (JELS) model for coordinated inventory replenishment decisions considering price and environmentally sensitive demand. It assumes a single product that flows along a two-level supply chain (vendor–buyer). The buyer's demand is linear and sensitive to the product's price and its environmental performance. A capital investment is considered necessary to improve the production process resulting in an indirect improvement of the product's environmental quality. A mathematical model is developed to represent this situation and solved to maximize the total profit of the supply chain for: (1) the vendor's production lot size quantity and the number of shipments to the buyer, and (2) the selling price and the amount invested to improve the production process. Numerical examples are provided with their results discussed.