Optimum profit model based on order quantity, product price, and process quality level

The maximum expected profit model between the producers and the purchasers is an important objective for the supply chain system. The producer’s profit needs to consider the problem of sales revenue and manufacturing cost. The purchaser’s profit needs to consider the problem of order quantity and used cost of customer. How to get a trade-off between them should be an important topic. nd Liu (2007) presented the optimum profit model between the producers and the purchasers for the supply chain system with pure procurement policy. However, their model with simple manufacturing cost did not consider the used cost of customer. In this study, the modified Chen and Liu’s model will be addressed for determining the optimum product and process parameters. The authors propose a modified Chen and Liu’s model with indirectly measurable quality characteristic under the single stage screening procedure. The surrogate variable with high correlation with indirectly measurable quality characteristic will be directly measured. The used cost of customer can be obtained by adopting Taguchi’s quadratic quality loss function. The optimum purchaser’s order quantity, the producer’s product price, and the process quality level will be jointly determined by maximizing the expected profit between them.