Inventory models for imperfect production and inspection processes with various inspection options under one‐time and continuous improvement investment

This study investigates both internal and external effects of defective production and delivery from imperfect production and inspection processes in a stable production and inventory system, and subsequent defective returns and dispositions. We first develop profit‐maximizing imperfect‐quality inventory models for various inspection options (sampling inspection, entire lot screening, and no inspection) under one‐time improvement investment in production and inspection reliability. We then present the models under continuous improvement (CI) investments over multiple periods, which have not been explored before. In a CI environment, we further propose an inspection alternative of changing an inspection option from entire lot screening to no inspection and vice versa. We develop an algorithm for finding the optimal inspection policy yielding a superior profit, among inspection option change between entire lot screening and no inspection and those without option change. Based on the analytical models along with numerical and simulation analyses, we provide important managerial implications to practicing managers and future research directions.