Purchasing policy for automotive parts industry

For the automotive industry, the material purchasing policy is one of the most important management decisions. Availability, lead time and demand uncertainties are three significant phenomena in this industry. In this paper we incorporate the purchasing risks such as availability, lead time and demand uncertainties into the inventory model. The objective is to determine the optimal ordering quantity to minimize the total related cost. A practical case in the automotive parts industry is used to verify the model. It predicts a 6.42% to 10.38% decrease in total related cost on the real application if the solution of our model is implemented. From numerical analysis, we discuss the influences of system parameters on decisions and point out several managerial insights.