Economic production quantity model with cost of quality considerations

Tharat Ittharat, Elliot J. Montes, Mario G. Beruvides

Research output: Contribution to conferencePaperpeer-review

Abstract

Determining the optimal production lot sizing has been widely used by the classical economic production quantity (EPQ) model. However, the analysis for finding an EPQ has several weaknesses which lead many researchers to make extensions in several aspects on the original EPQ model. The cost of quality is one of good aspects to be added to the EPQ model since there are a lot of costs incurred such as prevention, appraisal, failure, warranty, inspection, and rework costs. The integration of COQ and EPQ should be able to link and classify each cost of COQ in practical way of inventory management. In this research, the economic production quantity (EPQ) is used to study the relationship of COQ and inventory management. This paper deals with the finite production inventory model integrated with quality costs for a single product imperfect manufacturing system. This problem assumes that the product quality is not always perfect unlike the traditional EPQ model. The defect rate is considered as a random variable with a known probability density function, and defective items are reworked at some cost either before, or after sales (i.e., customer returns). The prevention, appraisal, and inspection costs have somewhat inverse relationships to the defective rate. The replacement rate from customer returns is also considered to be another random variable with known failure rate in the field. Three mathematical model formulations are developed and presented: (1) Model I: EPQ integrates with no inspection policy and cost of warranty (For high quality products). (2) Model II: EPQ integrates with 100% inspection policy, rework product, and cost of warranty (For low quality products) (3) Model III: EPQ integrates with Sampling plan inspection policy, rework product, and cost of warranty. The purpose of this research is to examine the trade-offs between investments to reduce the defect and failure costs, and the other operating costs in order to find the optimal economic production quantity. The objective is to develop mathematical models in order to minimize the expected total cost of inventory and quality. Numerical examples for the three models are presented.

Original languageEnglish
Pages339
Number of pages1
StatePublished - 2004
EventIIE Annual Conference and Exhibition 2004 - Houston, TX, United States
Duration: May 15 2004May 19 2004

Conference

ConferenceIIE Annual Conference and Exhibition 2004
CountryUnited States
CityHouston, TX
Period05/15/0405/19/04

Keywords

  • Cost of Quality
  • Defect
  • EPQ
  • Economic Production Quantity Model
  • Inventory

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