abstract
This article develops an integrated inventory model to determine the optimal policy under
conditions of order processing cost reduction and permissible delay in payments. Both the
vendor and the buyer participate in order processing cost reduction by applying information
technologies. The order processing cost can be reduced by certain expenditures and
will affect lot-size decisions. Simultaneously, the existence of the credit period serves to
reduce the cost of holding stock to the buyer, because it reduces the amount of capital
invested in stock for the duration of the credit period. The article derives the total cost
function and shows that the function possesses some kinds of convexities. A solution procedure
is provided to determine the optimal order policy. Finally, numerical examples are
presented to illustrate the solution procedure.