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The purpose of this paper is to develop an economic production quantity model (EPQ) in a coordinated supplier-produced supply chain. This collaborative supply chain accounts for the quality of both finished product and raw material used in the production process. It is assumed that the raw material acquired from the supplier contains a percentage of good quality items. These items are detected through a screening process at the beginning of the production period. The quality of the finished items produced is checked continuously throughout the production period. The imperfect quality items are either reworked or rejected. The nature of this production/inventory problem necessitates the consideration of shortages. The mathematical model is formulated and the supply chain is optimized by determining the order quantity that maximizes the collaborative profit function. Numerical examples are provided to illustrate the model and the collaborative and non-collaborative models are compared.

Inventory Control, Economic Production Quantity, Supply Chain, Quality, Screening, Rework, Reject.