Sampling inspection strategy on continuous review inventory model with a service level constraint

Abstract

This paper assumes that an arrival order lot may contain some defective items, and adopts a sampling inspection strategy. It also assumes that uninspectived defective items which were sold can be returned, and thus incurs an extra penalty cost for a vendor. We consider two stochastic continuous review inventory models in which the order quantity and reorder point are viewed as decision variables. Instead of having a stockout cost term in the objective function, a service level constraint is added to the model. In this study, we first assume that the lead time demand follows a normal distribution. Then, the assumption is relaxed to consider a distribution-free case where only the mean and standard deviation of lead time demand are known. For each case, we develop a procedure to find the optimal solution.

Keywords:

• Inventory
• defective item
• sampling inspection
• service level
• minimax distribution free procedure