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The problem of buffer sizing and inspection stations positioning in unreliable production lines is a complex mixed integer nonlinear optimization problem. In this problem, we have a production line with n machines and n fixed-size (storage) buffers in series. The machines produce parts that are either conforming or nonconforming, and the line includes inspection stations that reject the nonconforming pats. The goal is to find the optimal buffer sizes, the number and positions of the inspection stations, and satisfy the customer demand on conforming parts while minimizing the total cost. We present in this paper an exact method to solve this complex manufacturing problem. We also present new theoretical results on buffer-size bounds, stationarity, and cost function convexity permitting to significantly reduce the problem complexity. These theoretical and algorithmic developments allow solving to optimality instances with up to 30 machines tools developed previously cannot solve. ARTICLE HISTORY