Abstract:  As large lot size per order may decrease the flexibility of the buyer, lotsize ordering cost is introduced to measure the buyers risk cost related to the lot size during the time period from ordering to receiving. By comprehensively assessing the costs resulting from ordering, transporting, inventory, and lotsize ordering, the buyer can find the optimal lot size. Based on the results obtained, the lotsize ordering problem is studied for a supply chain composed of one buyer and one supplier. For such a supply chain, with just in time (JIT) lotsplitting strategy, optimal ordering and setup strategies can be found for both centralized and decentralized decisionmaking modes. Then, the bargaining power of both sides is analyzed and a method to yield a strategy that is acceptable by both sides is proposed.

Key words: lot-size ordering cost, just in time (JIT), supply chain