An inventory policy of inspection and setup cost on the integrated production-inventory system for flawed items

Abstract

Almost all inventory models assume that setup cost is deterministic, and thus is not subject to control. However, in many practical situations, setup cost can be reduced at added cost, this article combines the concept of capital investment allocated to reducing the setup cost to determine an optimal integrated vendor-buyer inventory policy for flawed items in a just-in-time (JIT) manufacturing environment. The objective is to minimize the total joint annual costs incurred by the vendor and the buyer. The production process is assumed to deteriorate during processing and produces a certain number of defective items. The expected annual integrated total cost function is derived and a solution procedure is established to find out the optimal solution. Finally, the solution technique is illustrated with a numerical example available in the literature.

Keywords:

• Inventory
• setup cost
• economic order quantity
• imperfect quality