Modelling the newsvendor problem with a random fraction of defective items in the lot

Mohammad J. Alkhedher, Abdulrahman Alenezi and Mehmet Savsar

International Journal of Procurement Management, 2017, vol. 10, issue 4, 495-513

Abstract: An important assumption in deriving a formula for the optimal lot size newsvendor problem is that 100% of items in an ordered lot are assumed conforming to specifications. In real-life situations, however, this assumption may not hold for many production processes because of process deterioration and other factors. This paper develops a model for the newsvendor problem under the assumption that each ordered lot contains a random fraction of defective items which follows a beta distribution. The concavity of the expected total profit is established and the global optimal solution is determined by an algorithm based on Karush-Kuhn-Tucker conditions. Also, the effects of model's key parameters on the optimal solution are investigated using several case examples.

Keywords: imperfect quality; defective items; sampling inspection; rework; inspection policies; fraction defective. (search for similar items in EconPapers)
Date: 2017
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