jay,
I may not understand the situation, but it appears that you have decided on a test to determine whether a lot of material is acceptable for shipment. The lot has failed so you now want to change the parameters of the test so that the lot will pass. If that is the case, it is relatively simple to determine what the sampling size and acceptance number should be to pass the lot. IMHO however, you should decide whether or not this is really what you want to do.
If you want a sampling plan that provides 95% confidence that the lot of material is no worse than 1% 'defective' you can use a standard sampling scheme or design a custom sampling scheme to provide that protection. Either will require you test a number of samples randomly selected from the lot. If you want to estimate the the number of defectives in a lot of material at some confidence level, you can also do that. Similarly it will required a number of random samples selected from the lot. Any good text on statistics/sampling can help you with either of the options I mentioned.