Retailer's strategy choice for defective items under temporary price reduction: Incurring defect sales return or increasing the screening rate

Suppliers offer retailers temporary price reduction for various reasons, such as a need to reduce excess inventory or the marketing strategy of getting retailers to pass some of the price discounts to the final consumers to stimulate demand. This paper investigates two inventory models for defective items under temporary price reduction in a situation where the screened good items cannot satisfy the increased consumer demand during the screening period. The retailer has two strategies in this situation. (1) The retailer incurs defect sales return because he satisfies the consumer demand with both screened good items and unscreened items which include a proportion of defective items; (2) The retailer increases the screening rate through investment to quality checking process. Two mathematical models are developed corresponding to the two strategies. Then the properties of each model are analysed. Finally, numerical examples are provided to compare the characteristics of these two models.