Abstract
In this paper, the author modifies Chen and Liu’s (2008) model by considering both consignment policy and quality investment. Taguchi’s (1986) quadratic quality loss function is adopted for evaluating the product quality. The optimal parameters of manufacturer’s quality investment and commission fee and retailer’s economic order quantity are simultaneously determined by maximizing the expected profit of supply chain system. A comparative study between the modified model with/without quality investment is provided for illustration. Numerical results show that the modified Chen and Liu’s (2008) model with quality investment has a larger order quantity, a smaller per unit commission, a larger fixed commission fee increase, a larger manufacturer’s expected profit, a larger retailer’s expected profit, and a larger expected profit of the supply-chain system than those of one without quality investment.
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