Consignment stock policy with unequal shipments and process unreliability for a two-level supply chain

Abstract

This paper considers a vendor managed inventory model with consignment stock policy in which a single vendor delivers a single product to a single buyer in unequal-sized shipments. The vendor’s production process may produce some defective items during a production run. The buyer performs a screening process immediately after receiving each delivery from the vendor and the vendor bears the warranty cost of defective item, if any. The buyer either scraps or repairs the defective items by sending them to a repair factory. The average expected profit of the integrated system is derived using renewal reward theorem and a solution procedure is suggested to determine the optimal shipment policy of the vendor. Numerical examples are taken to determine both the equal and unequal shipment policies and compare their relative performances.