Integrated model for an imperfect production-inventory system with a generalised shipment policy, errors in quality inspection and ordering cost reduction

ABSTRACT

This paper develops a single-manufacturer, single-retailer production-inventory model in which the manufacturer delivers the retailer’s ordering quantity following a generalised shipment policy. The manufacturer’s production process is imperfect and the retailer employs an inspection activity on receiving each shipment from the manufacturer. The expected annual total cost is derived using renewal theory and a solution procedure is suggested to determine the optimal decisions. An extensive numerical study based on different sets of parameter values is conducted and it is shown that the proposed shipment policy is not inferior to other existing shipment policies in terms of integrated system cost. The model is further extended with the consideration of inspection errors at the retailer’s end and accounting for retailer’s ordering cost reduction through effective investment. The impacts of inspection errors and capital investment in ordering cost reduction on the joint annual cost of the integrated system are also studied.

KEYWORDS:

• Supply chain
• imperfect production
• shipment policy
• errors in inspection
• ordering cost reduction

Disclosure statement

No potential conflict of interest was reported by the authors.