Modified optimum profit model with single supplier and multi-retailers under the consignment policy

Abstract

In this study, the authors propose a modification of the consignment policy model presented by Chen and Liu in 2007, with imperfect product quality, a single supplier and multiple retailers. A 100% inspection of the product is considered. Conforming product from the supplier is sold to the customer and non-conforming product is scrapped and sold at a lower price. Taguchi's quadratic quality loss function is used for measuring product quality. The optimum supplier's process mean, per-unit commission, fixed commission fee, and production run length and each retailer's economic order quantity will be jointly determined under the maximum expected total profit including the single supplier and multiple retailers. Numerical results show that the selling price per unit and the mean of the customer demand have major effects on the expected profit of the supply chain system.

Keywords::

• Consignment policy
• economic order quantity
• process mean
• Taguchi's quadratic quality loss function
• commission fee
• production run length

JEL Classification::

• C44
• C61
• M11