Intra-supply chain system with multiple sales locations and quality assurance

Abstract

The emergence of the global economy has transformed the interdepartmental nature of a transnational enterprise into a highly collaborative oriented team. This transformation enables the enterprise to lower its transaction and coordination costs and increase its competitive advantage in the global market. This study investigates such a so-called intra-supply chain system that exists in present-day transnational firms, wherein a single production unit manufactures products to meet the demands of multiple regional sales offices and incorporates quality assurance in its production. The objective of the present study is to determine an optimal production quantity and shipment policy that minimizes the integrated production–inventory–delivery costs for the intra-supply chain system. In this study, considerations related to a product’s quality assurance include inspection for quality, rework of defective items and failure in rework. Delivery of the finished products starts when quality of the entire production lot is assured. Multi-shipment policy is used to synchronously transport finished items to multiple locations for satisfying customer demands in each cycle. Mathematical modeling along with Hessian matrix equations is employed to solve the proposed intra-supply chain system. A numerical example with a discussion and cost-benefit analysis of outsourcing work to an external distributor is presented to demonstrate the practical applicability of the obtained results.