Technology and Investment, 2011, 2, 211-221 doi:10.4236/ti.2011.23022 Published Online August 2011 (http://www.SciRP.org/journal/ti) Copyright © 2011 SciRes. TI Optimization of Supply Chain Planning with Considering Defective Rates of Products in Each Echelon Behin Elahi 1* , Yaser Pakzad-Jafarabadi 2 , Leila Etaati 3 , Seyed-Mohammad Seyedhosseini 1 1 Department of Industrial Engineering, Iran University of Science and Technology, Tehran, Iran 2 Department of Engineering at Saipa Press Company, Institute of Management and Planning Studies, Tehran, Iran 3 Department of Industrial Engineering, Branch of Science and Research, Islamic Azad University, Tehran, Iran E-mail: {Behinelahi, Seyedhoseini}@yahoo.com, {Yaser.pakzad, Leila.etaati}@gmail.com Received April 14, 2011; revised May 21, 2011; accepted May 30, 2011 Abstract Supply Chain Planning has recently received considerable attention in both academia and industry. The ma- jor targets of supply chain planning are to reduce production costs, risks, delays and maximize or improve profit, quality of product, customer service which result in increased competitiveness, more customer satis- faction and portability. In this study, a new bi-objective mathematical modeling for a four-echelon supply chain, consisting multi-supplier, assembler, distribution center and retailer, with considering the defective rates of products is proposed. Then, fuzzy compromise programming method is applied to solve the non-linear mixed-integer bi-objective model. Finally, a numerical example is given to illustrate application of the proposed algorithm and the efficacy and efficiency of that are verified through this section. It has been shown that such an approach can significantly help the managers to decide properly toward economic supply chain planning. Keywords: Supply Chain Management; Supply Chain Planning, Mathematical Model, Non-linear Mixed Integer Programming, Fuzzy Compromise Programming 1. Introduction Supply chain planning is one of the most vital decisions in today’s global market as companies are forced to gain a competitive advantage by focusing attention to their entire supply chain. The notable concentration in the supply chain planning related research in the last decade has been owing to its potential to improve the efficiency and efficacy of operations and reduce costs. In real world, variety of activities are involved in supply chain plan- ning issue such as supplier selection, inventory manage- ment, purchasing and transportation of materials, com- ponents and finished products in a multi-echelon supply chain. Suppliers are the significant link to any supply chain and subsequently sourcing decision is one of the essential decisions to be taken at the planning stage. Ac- cording to Chopra and Meindl (2007), inventory is rec- ognized as one of the four major drivers in a supply chain (Figure 1). Most successful companies begin with a competitive strategy and then decide what their supply chain strategy ought to be. The supply chain strategy determines how the supply chain should perform with respect to efficiency and responsiveness. The supply chain must then utilize the three drivers to reach the per- formance level the supply chain strategy dictates and maximize the supply chain profit. Inventory is one of the key drivers of supply chain performance. It exists in the supply chain because of a mismatch between supply and demand. An important role that inventory plays in a sup- ply chain is to increase the amount of demand that can be satisfied by having the product ready and available when customer wants it. Another significant role that inventory plays is to reduce cost by exploiting economics of scale that may exist during production and distribution. Inven- tory is held throughout the supply chain in form of raw material, work in process and final goods. Inventory is a major source of cost in supply chain and has huge impact on responsiveness. Facility is another important driver of supply chain performance in terms of responsiveness and efficiency. For instance, companies can gain economies of scale when a product is manufactured or stored in only one location; this centralization increases efficiency. The cost reduction; however, comes at the expense of responsive-