Optimum Profit Model between Producer and Purchaser by Considering Quality Investment

Abstract

In 2007, Chen and Liu's (2007) model presented the optimum profit model between the producer and the purchaser for the supply chain system. However, their model with simple manufacturing cost did not consider the used cost of customers in their pure and mixed procurement policies. Hence, the modified Chen and Liu's model should be addressed for determining the optimum product and process parameters. In this study, the authors propose a modified Chen and Liu's model with economic selection of quality improvement. Both mean and standard deviation of process are assumed as a declining exponential function of the quality investment. Taguchi's symmetric quadratic quality loss function will be applied in evaluating the product quality. The optimum purchaser's order quantity, producer's wholesale price, improved process mean, improved process standard deviation and quality improvement will be jointly determined by maximizing the expected total profit between the producer and the purchaser.