This paper investigates the integrated vendor-buyer inventory model in which each buyer's arrival order lot contains a random proportion of defective items and the lead-time demand in the market has a normal distribution. The inspection strategy adopted here is that the buyer inspects all the items before selling, allowing defective items to be discovered and returned to the vendor. We formulated an integrated vendor-buyer inventory model with partial backlogging, in which the order quantity, reorder point and the number of shipments from the vendor to the buyer are decision variables. An algorithm was developed to obtain the optimal production and inventory strategy. Furthermore, the affect of parameters on the optimal solution is also discussed.
International Journal of Logistics Systems and Management 8(4), pp.377-391