A production-inventory model of imperfect quality products in a three-layer supply chain

In this paper an integrated production-inventory model is presented for supplier, manufacturer and retailer supply chain, considering perfect and imperfect quality items. This model considers the impact of business strategies such as optimal order size of raw materials, production rate and unit production cost, and idle times in different sectors on collaborating marketing system. The model can be used in industries like textile and footwear, chemical, food, etc. An analytical method is employed to optimize the production rate and raw material order size for maximum expected average profit. An example is illustrated to study the behavior and application of the model.

Research Highlights
► Production-inventory model of imperfect quality products.
► Three-Layer supply chain.
► Comparison between integrated supply chain management and Stakelberg approach.
► Idle times, finite replenishment rates, variable production rate and effect of imperfect items.