Inventory and pricing decisions for imperfect quality items with inspection errors, sales returns, and partial backorders under inflation

¹ Department of Operational Research, Faculty of Mathematical Sciences, New Academic Block, University of Delhi, Delhi 110007, India
² Department of Industrial Engineering, Yonsei University, 50 Yonsei-ro, Sinchon-dong, Seodaemun-gu, Seoul, 03722, South Korea

^* Corresponding author: bsbiswajitsarkar@gmail.com

Received: 12 April 2018
Accepted: 10 November 2018

Abstract

In this paper, an optimal replenishment inventory policy for imperfect quality items is presented with a selling price-dependent demand under inflationary conditions using a discounted cash flow (DCF) approach. Due to the presence of defectives in the system, all items go through a 100% inspection process. However, the screening process is also considered to be imperfect and involves errors, namely Type-I and Type-II. In addition, shortages are allowed and are partially backlogged. An optimal solution for the proposed model is derived by maximizing the expected profit function by jointly optimizing three decision variables: selling price, order quantity, and backorder level. To validate the theoretical results, a numerical example along with comprehensive sensitivity analysis is offered. The model has pertinence in industries like textiles, electronics, furniture, footwear, automobiles, and plastics.