Journal of Applied Science and Engineering

Published by Tamkang University Press


Impact Factor



Chung-Ho Chen This email address is being protected from spambots. You need JavaScript enabled to view it.1, Chao-Yu Chou2 and Wei-Chen Lee1

1Graduate Institute of Industrial Management, Southern Taiwan University of Science and Technology, Tainan 710, Taiwan, R.O.C.
2Department of Finance, National Taichung University of Science and Technology, Taichung, Taiwan, R.O.C.


Received: February 20, 2012
Accepted: June 26, 2012
Publication Date: December 1, 2012

Download Citation: ||  


In the present paper we modify Chen and Liu’s model by considering both consignment policy and quality loss of products. Taguchi’s quadratic quality loss function is adopted for evaluating the product quality. The optimal parameters of manufacturer’s process mean and commission fee and retailer’s economic order quantity are simultaneously determined by maximizing the expected total profit of society. A comparative study between the modified model and the original Chen and Liu’s model is provided for illustration. Numerical results show that the selling price per unit and the mean of the demand of customer have major effects on the expected profit of the supply chain system.

Keywords: Economic Order Quantity, Commission Fee, Taguchi’s Quadratic Quality Loss Function, Process Mean, Consignment Policy


  1. [1] Seifert, R. W., Thonemann, U. W. and Hausman, W. H., “Optimal Procurement Strategies for Online Spot Markets,” European Journal of Operational Research, Vol. 152, pp. 781799 (2004).
  2. [2] Haksoz, C. and Seshadri, S., “Supply Chain Operations in the Presence of a Spot Market: A Review with Discussion,” Journal of the Operational Research Society, Vol. 58, pp. 14121429 (2007).
  3. [3] Chen, S. L. and Liu, C. L., “Procurement Strategies in the Presence of the Spot Market - An Analytical Framework,” Production Planning & Control, Vol. 18, pp. 297309 (2007).
  4. [4] Chen, S. L. and Liu, C. L., “The Optimal Consignment Policy for the Manufacturer under Supply Chain Coordination,” International Journal of Production Research, Vol. 46, pp. 51215143 (2008).
  5. [5] Li, J. and Liu, L., “Supply Chain Coordination with Manufacturer’s Limited Reserve Capacity: An Extended Newsboy Problem,” International Journal of Production Economics, Vol. 112, pp. 860868 (2008).
  6. [6] Chen, S. L. and Huang, S. C., “Managing Supply Chain Risk with Options and Online Spot Markets,” Journal of Statistics & Management Systems, Vol. 13, pp. 389407 (2010).
  7. [7] Taguchi, G., Introduction to Quality Engineering, Asian Productivity Organization, Tokyo (1986).
  8. [8] Chen, C. H., “The Trade-Off Model between Retailer’s and Manufacturer’s Profits,” International Journal of Reliability and Quality Performance, Vol. 2, pp. 2131 (2010).