A two-stage supply chain with inspection errors and learning in production

Abstract

It is imperative for the firms today to continuously look for ways to improve their performance. Coordination is a tool that is frequently employed for this purpose. Common cycle time, quantity discounts and delay in payments are some of the coordination strategies between the stakeholders in a supply chain. An important issue which is missing in the supply chain literature is incorporating human factors such as inspection errors and learning. This paper develops a simple approach to determine an optimal vendor-retailer inventory policy that accounts for inspection error at the retailer’s end and learning in production at the vendor’s end. The objective is to minimize the joint annual cost incurred by the supply chain. A numerical example is presented to illustrate the significance of the model presented.