Optimum profit model based on the average outgoing quality limit protection

Abstract

The optimal setting of process mean is an important issue in operations management and a variable sampling inspection plan is an acceptance sampling technique for quality assurance. In the present study, the newsvendor problem (i.e., the mixed procurement system) is modified by applying a variable sampling inspection plan with specified average outgoing quality limit (AOQL) with maximization of the expected total profit including the manufacturer and the retailer. The optimal retailer’s order quantity and manufacturer’s process mean and the parameters of sampling plan are jointly determined by maximizing the expected total profit. In the model, the single sampling rectifying inspection plan is adopted to determine the quality of lot product and the used cost of customer for product is measured by Taguchi’s quadratic loss function. A numerical example is given and the sensitivity analysis of model parameters are provided for illustration. Based on the results of sensitivity analysis, it may be seen that a higher processing cost per unit generally leads to a lower expected profit. In the meantime, a higher retailer’s selling price always results in a higher expected profit.