The impact of nonconforming items on inventory systems

The goal of inventory management is to decide the timing and quantity of ordering in response to various kinds of uncertainty. The failure of manufacturing machines, shortage of materials, and overworking may prevent manufacturers from achieving the planned quantity of items. Additionally, some nonconforming items may be included in the replenishment to retailers as a result of imperfect production and inspection by manufacturers and damage during transport. Consequently, the planned quantity of items may not be supplied to retailers. The uncertainty about production should be considered in the decision-making of inventory management. In this article, we consider the impact of nonconforming items on the following traditional inventory systems: continuous review and periodic review. In particular, we investigate how the inclusion of nonconforming items has an influence on inventory policies and operating costs. Then, the difference of influence between both systems is discussed.