Optimal Pricing and Ordering Policies for a Two-Layer Supply Chain with Imperfect Quality Items under Two Inspection Scenarios

This paper developed integrated production–inventory-marketing models for a two-stage supply chain consisting of one vendor and one buyer. The aim of the paper was to decrease the inconsistency between theory and practice of inventory management by relaxing some unrealistic assumptions such as constant demand and fully perfect items that make the models practically impossible for real-life problems. Two inspection scenarios were considered, and for each one, the supply chain’s total profits under independent and also joint optimization were maximized by determining the optimal values of selling price, order quantity and number of shipments. A numerical example, including sensitivity analysis for critical parameters, was given. The computational results revealed that cooperation between the buyer and the vendor, regardless of inspection scenario, is beneficial for the supply chain, especially for more price sensitive demands. In addition, specifying the best inspection scenario is dependent on the unit warranty and unit inspection costs.