Economic ordering policy for an item with imperfect quality subject to the in-house inspection

This article considers a production/inventory system where each lot of items received or produced contains a random proportion of defective units, items of imperfect quality. The purchaser contacts a 100% inspection in order to identify the perfect (acceptable) quality items. The model examines the following two options for the imperfect quality items: sell them to a secondary market, as a single batch and at a price lower to that of new ones, or rework them at some cost and then use them as new ones to satisfy demand. After inspection, the good quality items are sent to the working inventory warehouse in batches of equal size. For both of these cases, the optimal ordering lot size and the optimal number of batches are obtained. A numerical example illustrates the solution procedure and sensitivity analysis results are reported.

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