Abstract
This paper deals with an inventory model in which the demand rate is influenced by the quality of the material received . The case considered is a situation in which the consumption rate is adjusted whenever the incoming material does not have the desired quality but still usable. This leads to uncertainity in the inventory cycle and may create unplanned shortages. The model takes into account differential prices of the material based on quality. The behaviour of the optimal order level and the optimum cost has been studied as a function of the probability with which good quality material can be received. Numerical illustrations are given in support of the theoretical results.
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