This paper deals with an inventory model for continuous review (Q, r) where there are some proportions of defective items in the ordered items. The number of defective items in a lot vary and it is assumed that their proportions follow a beta distribution. Lead time demand is a random variable, its distribution and parameters are known. This model also accommodates a condition where lost sales and back order policy are implemented in one cycle with different proportions of defective items. Numerical example is also given for illustration.
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