A vendor-buyer integrated inventory model with defective items, production cost and equal-sized delivery

Abstract

We propose an integrated inventory model for vendor-buyer system considering defective items and allowable shortage backordering. The shipment of lot from vendor to buyer is made in equal size. The buyer conducts inspection to ensure the quality of the received items. Here, we incorporate production cost into the model which gives the vendor the opportunity to adjust the production rate. We develop an iterative procedure to obtain the optimal solution of the delivery quantity, frequency of delivery, number of backorder and production rate. From numerical example, it can be proved that our integrated model results in lower total cost compared to the independent model. Allowing the vendor to control the production cost by adjusting the production rate will also give total cost savings to the system. The increase in the rate of the defective items produced by vendor will lead to the increase in delivery quantity and the decrease in number of backordered items and production rate.