A biobjective economic model for a two-level supply chain production process

This research explores a bi-criteria economic model for determining the optimal quality level setting of a key item production, and choosing the inspection sampling plan for a two-echelon supply chain process. The model objectives are to maximize the total profit of the upstream supplier and the downstream producer, and at the same time ensure that the difference between their respective earnings is within a reasonable range. This collaborative production strategy can ensure that both sides obtain satisfactory returns and maintain a longer partnership. In this supply chain, the supplier determines the item quality by selecting a quality level of process setup, as well as the cycle time to reset this quality level. There is a tradeoff between total setup cost and the resulting component quality. Two distributions, interrupted geometric and discretized interrupted exponential are used to describe the item manufacturing quality based on various parameters. On the other hand, the producer will adopt an inspection sampling policy before sending the purchased items to his assembly line. Furthermore, it is assumed that the production process will deteriorate, and the inspection is imperfect. The supplier must bear the loss for his downstream producer´s type I inspection error, but the producer will in turn undertake the risk of sending flawed products to customers. The application of the proposed model is illustrated via two examples.