Integrated inventory model involving quality improvement investment and advance-cash-credit payments

Abstract

This paper investigates the effects of investment and inspection policies on an integrated production–inventory model involving defective items and upstream advance-cash-credit payment provided by the supplier. In this model, retailers offer customers a downstream credit period. Furthermore, the defective rate of the item can be improved through capital co-investment by the supplier and retailer. The objective of this study was to determine the optimal shipping quantity, order quantity, and investment alternatives for maximizing the supply chain’s joint total profit per unit time. An algorithm was developed to obtain the optimal solution for the proposed problem. Several numerical examples are used to demonstrate the proposed model and analyze the effects of parameters changes on the optimal solutions. Finally, management implications for relevant decision makers are obtained from the numerical examples.