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Supply chain coordination with defective items and quantity discount

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  • Hsien-Jen Lin
  • Yu-Jen Lin

Abstract

This study develops an integrated inventory system involving defective items and quantity discount for optimal pricing and ordering strategies. The model analysed in this study is one in which the buyer orders a quantity, the vendor produces more than buyer's order quantity in order to reduce set-up cost, and then he/she offers an all-units quantity discount to the buyer. Our objective is to determine the optimal order quantity, retail price, mark-up rate, and the number of shipments per production run from the vendor to the buyer, so that the entire supply chain joint total profit incurred has a maximum value. Furthermore, an algorithm of finding the optimal solution is developed. Numerical examples are provided to illustrate the theoretical results.

Suggested Citation

  • Hsien-Jen Lin & Yu-Jen Lin, 2014. "Supply chain coordination with defective items and quantity discount," International Journal of Systems Science, Taylor & Francis Journals, vol. 45(12), pages 2529-2538, December.
    • Handle: RePEc:taf:tsysxx:v:45:y:2014:i:12:p:2529-2538
    DOI: 10.1080/00207721.2013.773468
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    Cited by:

    1. Ke, Ginger Y. & Bookbinder, James H., 2018. "Coordinating the discount policies for retailer, wholesaler, and less-than-truckload carrier under price-sensitive demand: A tri-level optimization approach," International Journal of Production Economics, Elsevier, vol. 196(C), pages 82-100.
    2. Tiwari, Sunil & Kazemi, Nima & Modak, Nikunja Mohan & Cárdenas-Barrón, Leopoldo Eduardo & Sarkar, Sumon, 2020. "The effect of human errors on an integrated stochastic supply chain model with setup cost reduction and backorder price discount," International Journal of Production Economics, Elsevier, vol. 226(C).

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