Pricing Strategy of an Economical Order Quantity Inventory Model for an Imperfect Quality Items Considering with Shortages and Backordering

Abstract

This study tackles the problem to decide a parsimonious order quantity (POQ) for highly demanded and imperfect quality items so that profit becomes maximized. Generally, it is natural to have shortage of a highly demanded items and therefore we have considered shortage and backordering policy in this study. We have studied this problem for the case, the reorder is made when the inventory level becomes zero. A screening process is applied on each lot of items to separate the items with imperfect and perfect quality.. When the supplier delivers the products to the retailer, the retailer immediately inspects all received items through the screening process. As per the ordering policy, the retailer sells these items with imperfect and perfect quality to
the customers comparatively at a low and high price respectively at the one business period. For satisfying the remaining demand of the customers for items with perfect quality, the retailer buys items from nearby markets at a high buying price. In this study, we optimized one business period in the condition at which the inventory level is still positive, agglomerate size, selling price, and gross profit per unit time. The concavity property is demonstrated graphically and numerically. Moreover, sensitivity analysis has been also done to explore the positive and negative impact of model parameters on outputs.