| Abstract: | Banerjee's [2] joint economic lot size (JELS) model, along with related works by Monahan [12] and Lal and Staelin [10], represents one approach to minimizing the total inventory carrying and ordering costs of a vendor and his purchaser(s). Noting that JELS philosophy requires a coordinated system and that its practical implementation is problematic, we present an alternative approach to the same problem: the individually responsible and rational decision (IRRD) approach. The IRRD approach is consistent with a free enterprise system and easy to implement. In order to show that the IRRD approach is also more economical than the JELS approach, we first build a more refined JELS model for the case of one vendor and many identical purchasers. Drawing on earlier criticisms of specific JELS models, our refinement relaxes the lot-for-lot assumption commonly used by JELS scholars. To be comparable with earlier works, we retain the assumption of deterministic conditions and demonstrate the economic advantages of IRRD over JELS through a numerical example. An algebraic proof of IRRD's superiority over JELS is offered in the more general and realistic case of a vendor dealing with K nonidentical purchasers with reasonably predictable annual demand but uncertain order quantities and timings. |
