Coordinating a two-level supply chain with defective items, inspection errors and price-sensitive demand

摘要

This paper presents an integrated inventory model consisting of a vendor and a buyer with imperfect product, imperfect inspection a nd backorder . We intend to study both inventory and pricing decisions in supply chain system by assuming that the demand i s sensitive to the buyer ' s selling price . In addition, the production cost is formulated by considering raw material cost, labor cost and advertisement cost . The objective of the model is to determine the delivery quantity, number of deliveries, buyer ' s s elling price and number of backorders . An iterative procedure is developed to find the optimal solution . A numerical example is presented to illustrate the application of the model and a sensitivity analysis is performed to investigate the effect of the ch anges in key parameters to the model ' s solution . The result show that the buyer ' s selling price is sensitive to the changes of the defect rate and the probability of type I inspection error.