Supply chain coordination for a deteriorating product under stock-dependent consumption rate and unreliable production process

This article develops a supply chain coordination model with a single-vendor and a singlebuyer. The vendor manufactures the product in lots and delivers to the buyer in equal shipments. The vendor’s production process is not perfectly reliable. During a production run, the process may shift from an in-control state to an out-of-control state at any random time and produces some defective items. The buyer whose demand is assumed to be a linear function of the on-hand inventory performs a screening process immediately after each replenishment. Moreover, the buyer’s inventory is deteriorated at a constant rate over time. The vendor-buyer coordination policy is determined by minimizing the average cost of the supply chain. It is observed from the numerical study that channel coordination earns significant cost savings over the non-coordinated policy.