Abstract
This chapter examines the ways that firms decide on inventory-level activities in dealing with global markets and investigates the effects of alternative shipment strategies on carbon emissions arising from inventory management and transportation. The authors develop new mathematical models incorporating salvage, substitution and outsourcing of items of imperfect quality, and the influence of fluctuating exchange rates between firms within the framework of a joint economic policy for lot-sizing in an imperfect production system. An optimization algorithm is constructed, and the authors investigate related properties to analyse the consequences of alternative shipment strategies and associated profits through three models. They demonstrate that a firm's optimum inventory level varies according to currency exchange rates and that differing shipment policies can lead to greater total profit in the supply chain. They discuss the implications of the models for firms' policies and show insights that operations managers and executives can refer to in handling global supply chains.
TopIntroduction
For companies in production or sales, including those in supply chains, the quality of products is crucial issue. In production, quality is a key factor in cost and efficiency. In sales, quality is the principal determinant of customer satisfaction. The two main models traditionally used, i.e., economic production quantity (EPQ) and economic order quantity (EOQ), are based on a perfect production process and do not consider product quality. In reality, though, a situation like this is not achievable; in practice, it is inevitable that defective product result from any production environment. Therefore, it is unrealistic to calculate optimal quantities for production or orders from these traditional models because they ignore the effects of defective products on quantities produced and ordered. Consequently, a lot of attention has been paid to inventory models that consider defective products (Porteus, 1986; Rosenblatt and Lee, 1986; Salameh and Jaber, 2000; Chan et al., 2003; Chiu, 2003; Yoo et al., 2009; Cárdenas-Barrón, 2009; Jaggi et al., 2013; Jaber et al., 2014; Bose and Guha, 2021; Sepehri and Gholamian, 2023). In addition, alongside the increasing use of Just-In-Time (JIT) and Supply Chain Management (SCM), many researchers have studied integrated inventory models that have been developed with a view to cooperation between vendors or manufacturers and retailers (Goyal, 1976; Banarjee, 1986; Hill, 1997; Goyal and Nebebe, 2000; Glock, 2012; Bushuev et al., 2015).
Key Terms in this Chapter
Supply Chain: A series of manufacturers, suppliers, retailers, distributors, and customers who are linked by flows of materials, payments and information.
Salvage: Recovering or reusing objects in ways resembling their original purpose, without reworking or preparation that significantly changes their original form.
Exchange Rate Volatility: The risk arising from unpredictable changes in exchange rates.
Outsourcing: The acquisition of products or services from providers that are outside the organization.