An Inventory Model for Growing Items When the Demand Is Price Sensitive with Imperfect Quality, Inspection Errors, Carbon Emissions, and Planned Backorders

Abstract

Inventory models that consider environmental and quality concerns have received some attention in the literature, yet no model developed to date has investigated these features in combination with growing items. Therefore, there is a need to incorporate these three relevant aspects together in a single inventory model to support decisions, compare results, and obtain new knowledge for the complexities of the real world. Moreover, current sustainable inventory management practices aim at mitigating the ecological consequences of an industry while preserving its profitability. The present study aligns with this perspective and introduces an economic order quantity (EOQ) model that considers imperfect quality while also accounting for sustainability principles. More specifically, the model addresses growing items, which have a demand dependent on selling price and the unique ability to grow while being stored in inventory. Additionally, the analysis acknowledges the possibility of classification errors during the inspection process, encompassing both Type-I and Type-II inspection errors. Furthermore, the model permits shortages and ensures that any shortage is completely fulfilled through backorders. The optimization model produces an optimal solution for the proposed model that is derived by optimizing three decision variables: order quantity of newborn items, backordering quantity, and the selling price of perfect items. A numerical example is presented, and the results are discussed. Finally, a sensitivity analysis on variations of parameters such as Type-I and Type-II errors shows that it is advantageous to reduce the percentage of good items that are misclassified as defective (i.e., Type-I error). As there is a direct impact of such errors on sales, it is imperative to address and mitigate this issue. When defective items are mistakenly classified as good Type-II errors, adverse consequences ensue, including a heightened rate of product returns. This, in turn, results in additional costs for the company, such as penalties and diminished customer confidence. Hence, the findings clearly suggest that the presence of Type-I and Type-II errors has a negative effect on the ordering policy and on the total expected profit. Moreover, this work provides a model that can be used with any growing item (including plants), so the decision-maker has the opportunity to analyze a wide variety of scenarios.