The effect of service level constraint on EPQ model with random defective rate

Yuan-Shyi Peter Chiu

Mathematical Problems in Engineering, 2006, vol. 2006, 1-13

Abstract:

We study the effect of service level constraint on the economicproduction quantity (EPQ) model with random defective rate. Wefirst prove that the expected overall cost for imperfect qualityEPQ model with backlogging permitted is less than or equal to thatof the same model without backlogging. Secondly, the relationshipbetween “imputed backorder cost” and maximal shortage level isderived for decision-making on whether the required service levelis achievable. Then an equation is proposed for calculating theintangible backorder cost for the situation when the requiredservice level is not attainable. By including this intangiblebackorder cost in the mathematical analysis, one can derive a newoptimal lot-size policy that minimizes expected total costs aswell as satisfies the service level constraint. Numerical exampleis provided to demonstrate its practical usage.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:098502

DOI: 10.1155/MPE/2006/98502

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