Coordination of Supply Chain with Imperfect Quality Items Based on Cost Adjustment

In this research, a collaborative inventory system of single supplier and single retailer is developed. The product of the supplier contains some defective items and the number of defective items can be changed through investments. First, the optimal cost of the supplier and retailer are determined respectively. Then, to ensure mutual benefit, a negotiation factor is adopted to allocate the cost savings between the supplier and the retailer. An optimization model with integration is proposed to minimize the total cost of the supply chain. Finally, numerical examples are provided to illustrate that the supply chain can be coordinated by choosing an appropriate negotiation factor.