Optimal Manufacturer-Retailer Policies in a Supply chain with Defective Product and Price Dependent Demand

This study deals with a two-level supply chain consisting of one manufacturer and one retailer. We consider an integrated production inventory system where the manufacturer processes raw materials in order to deliver the finished product with imperfect quality to the retailer, where the number of defective product has a uniform distribution. The retailer receives product and conducts a 100% inspection. We assume that unit price charged by the retailer influences the demand of the product. Shortages are allowed and assumed to be completely backordered. The proposed model is based on the joint total profit of both the manufacturer and the retailer, and it finds the optimal ordering, shipment and pricing policies. The numerical study shows that the coordination between supply chain members is more beneficial in industries by less defective percentage at manufacturer.