In real business transactions, it is a common situation that a retailer receives some imperfect quality items from a lot, and additional costs are occurred by these imperfect quality items. In addition, a supplier may provide a permissible delay in payments to a retailer in order to encourage the retailer to increase order quantities. To capture this reality, in this article, we study an economic order quantity model for the retailers. We assume that all items must be inspected and all imperfect quality items from a lot can be screened out through 100% inspection by the retailer. The imperfect quality items are sold in the secondary market at a lower price to compensate the loss. Based on the above situations, we model a retailer's inventory system as a profit maximization problem to determine the retailer's optimal ordering policy. Three theorems are thus established to find the optimal solution. Finally, numerical examples are given to illustrate all these theorems and sensitivity analysis is also performed to obtain managerial insights.
International Journal of Information and Management Science 28(2), p.113-132