The integrated policy with immediate return for defective items

Abstract

The economic production quantity (EPQ) and the economic order quantity (EOQ) models have been widely used in inventory management for vendors and retailers, respectively. However, an optimal solution for the EPQ or the EOQ model is only based on either vendors’ or buyers’ viewpoint. That is, such an optimal solution is usually beneficial to one of the vendors and buyers, but detrimental to the others. Hence, to establish a long-term cooperative relationship between the vendor and buyer, an integrated inventory model is needed. The purpose of this paper is to investigate a single-vendor single-retailer production-inventory model for products with imperfect quality. It is assumed that a 100% inspection process is conducted to screen out the defectives contained in the received lot and the defectives screened out during the 100% inspection process will be returned to the vendor immediately. By maximizing the expected annual integrated total profit, the optimal number of shipments in a cycle and the optimal size of each shipment are determined. A numerical example is provided to illustrate the proposed model and demonstrate the superiority of the proposed model to a general single supplier-single buyer system not considering lot-splitting shipments.

Keywords:

• EOQ
• EPQ
• imperfect quality
• immediate return
• integrated production-inventory model