Integrated multistage supply chain inventory model of multiple retailers with imperfect production and inspection systems

Abstract An integrated multistage supply chain inventory model containing a single manufacturer and multiple retailers is proposed to consider deteriorating materials and finished products with imperfect production and inspection systems. The main purpose is to jointly determine the manufacturer’s production and delivery strategies and the retailers’ replenishment strategies to maximize the integrated total profit. First, the individual total profit functions of the manufacturer and multiple retailers are established and are integrated to form the total profit function of the supply chain system. Then, to address the model complexity, an algorithm is proposed to obtain the optimal solution. Several practical numerical examples are presented to demonstrate the solution procedure, and a sensitivity analysis is performed on the major parameters. From the numerical results, several findings that differ from those in the previous literature were observed. First, retailers with larger market scale, better cost control, and inspection capabilities guarantee higher integrated total profit. Second, increasing the deterioration rates of materials and finished products affect the order quantity of materials in various ways. Third, the manufacturer’s shipping strategy is rigid and not easily adjusted in the proposed model. The performance of the proposed model has several meaningful management implications.