Optimal batch ordering over a finite planning horizon

This paper is concerned with finding an optimal inventory policy for a finite horizon, two‐stage inventory model. In this model, products may be manufactured in two stages. The first stage uses raw material from an external supplier and the second stage uses raw material from defective items that were returned and repaired during the first stage. The problem of jointly finding the optimal procurement of raw materials and the production plan is formulated as a mixed‐integer, non‐linear programming problem. A solution procedure for the problem is proposed. The suggested procedure is based on the work of Benkherouf and Gilding (2009).