Pricing and Ordering Decisions in a JELS-Model for Items with Imperfect Quality

This paper presents a joint economic-lot-size (JELS) model for coordinated inventory replenishment decisions between buyer and vendor. The vendor’s production process is imperfect and produces a certain number of defective items with a known probability density function. The items are delivered to the buyer in equal-sized lots. The buyer faces a linear, price sensitive demand and aims to maximize her expected profit. A mathematical model is developed to determine (a) the selling price, (b) the order quantity, and (c) the number of shipments to the buyer together with this the vendor’s production quantity. A numerical example for an independent as well as integrated policy is provided and its results are discussed.