Imperfect production in three-layer supply chain systems incorporating deterioration and screening effect

Abstract

This paper develops a three-layer supply chain for defective and non-defective types of produced items by supplier and manufacturer. The condition set by the chain for the suppliers and manufacturers is that after completion of screening, defective items are sold to the supplier to produce other items using the mentioned items. In the subsequent stage, the retailer accepts the non-defective items produced and screened by the manufacturer. Hence, although the retailers receive items of perfect quality for selling to the customers, they consider the effect of the deterioration of items. This model also considers the impact of several business strategies such as optimal order size of raw materials, production rate, unit production cost, idle time costs of the supplier, manufacturers in a collaborative marketing system, etc. to determine the optimum average profit of the integrated model. This study discusses the selling price of the retailer, demand rate of the customer, purchase cost of supplier, and holding cost, which can be a significant breakthrough in expanding the profit of the business in real terms. Numerical examples and sensitivity analysis are presented to illustrate the phenomenon of theoretical study and demonstrate the managerial implication of the model.