Abstract
Inventory management and coordination among different echelons are some of the primary factors for the success of any supply chain. The classical economic order quantity (EOQ) model endeavours to achieve optimisation in the field of inventory management across supply chains. Most of the literature on supply chains ignores the role of quality, human factors and variability in lead-time-demand, while trying to improve its performance. The objective of this paper is to study the combined effect of defective items, inspection errors and stochastic lead time demand on the optimal cost of a two level (vendor-buyer) supply chain. A simple solution procedure along with a numerical example is presented to determine the optimal solution to this model. A sensitivity analysis is carried out to illustrate the significance of different parameters. Finally, a discussion on management insights is presented to complement the model and results.
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