Economic order quantity models for the shipment containing defective items with inspection errors and a sub-lot inspection policy

This paper assumes that there may be some defective items in the various lots of an ordered shipment and chooses a sub-lot inspection policy. Another assumption that this paper makes is that a shipment is sent by a distant supplier and, therefore, the replacement of the defective items is not economical if an additional order is given to the same supplier. This paper incorporates misclassification errors, which are of two types: type 1 and type 2. In order to deal with the received defective items in the shipment, two cases are discussed in this study. The first case is to send them back to the repair shop to be reworked, whereas in the second case, those defective items are sold and replaced with perfect items by buying at a higher cost from a local supplier. For each case, a mathematical model is developed, and an example is solved. The results show a close connection between the optimal order size and sample size, which can be adjusted to maximise the total profit. The results also indicate that the local purchase of replacements for defective items tends to produce greater total profit than reworking them. [Received: 26 June 2018; Accepted: 17 May 2019]