Abstract

This article investigates the effect of two inspection policies on an EOQ model with imperfect quality items, where defective and non-defective items have different holding costs. In this regard, the inventory system should decide to adopt a full inspection or no inspection policy. When no inspection policy is conducted, the presence of defective items is ignored. As a result, the additional reputation damage cost incurs to the system. On the contrary, if a full inspection process is instituted to ensure the delivery of serviceable items to customers, the cost associated with the inspection process grows. Besides, we assume an erroneous inspection process to consider more practical situations. In other words, the inspector may commit type I and II errors. For both policies, we obtain the order size, which maximizes the total profit per unit time by analytical method. Finally, a numerical example is presented to discuss the advances of inspection policies to each other. We examine the desirable range of the fraction of imperfect quality items for each policy, then analyze which cost components make it.

Keywords: Inventory System, Economic Order Quantity, Different Holding Costs, Full Inspection, No Inspection, 100

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