- Abstract The paper deals with the layout and operation of an inspection system used for detecting malfunctioning processors in a multistage production system. This problem involves three inter-related decisions:(i) the overall inspection capacity;(ii) the assignment of inspection tasks to inspectors; and (iii) the scheduling of the inspector's tasks. These decisions require a trade-off between the cost of inspectors and the loss associated with non- conforming products. A hierarchical heuristic solution procedure is proposed to support these three related decisions. Numerical experiments demonstrate the performance of the heuristic, showing that solution criteria are very close to their lower bounds. Although we use production terminology, the results might be applicable to any organization, which inspects and maintains a variety of characteristics of its branches or activities.