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Abstract. In this study, an optimal integrated vendor-buyer inventory model with defective items is proposed. Most researches on defective items assumed that an inspection process was carried out by the buyer. We consider that the vendor conducts the inspection process and disposes defective items in multiple batches. We prove that the function of annual cost is convex, and obtain closed-form expressions. A solution procedure is used to derive the optimal order quantity, the number of shipments, and the number of defective item disposals. Numerical examples are provided to illustrate our model. Setting the fraction of defective items to zero, the numerical examples indicate that the proposed model can result in the solutions to the existing models without considering defective items. Moreover, a sensitivity analysis is used to reveal the e ects of cost parameters on the optimal solution. We show that when the disposal cost is relatively low, a multiple disposals strategy may perform better than a single disposal strategy.