An EOQ model with immediate return for imperfect items under an announced price increase

Abstract

The main purpose of this article is to investigate an economic ordering quantity model with imperfect quality under an announced price increase. It is assumed that a 100% inspection process is conducted to screen out the defectives contained in the received lot, and the defectives thus screened out will be returned to the vendor immediately. In practice, the mechanism of returning defectives to the vendor immediately may result from the increasingly exerted power of retailers, the need of satisfying strict quality requirement of customers, or the limitation of the storage space of retailers. Besides, the mechanism of immediate return usually indicates a promise of the vendor to his/her customers and is used to highlight the vendor's confidence in his/her products. The optimal ordering policies associated with three kinds of effective times of the price increase are obtained. A numerical example is then provided to illustrate the proposed model. The results indicate that the optimal special ordering quantity and the corresponding saving cost for an increase in price are both increasing with the increment of the price. For any price increase, both of the optimal special ordering quantity and the corresponding saving cost are negatively related to the remnant stock level at the time that the price increase is effective.