The effects of contractual agreements on the economic production quantity model with machine breakdown

Mahboobe Peymankar, Farzad Dehghanian, Yousef Ghiami and Mohammad Hassan Abolbashari

International Journal of Production Economics, 2018, vol. 201, issue C, 203-215

Abstract: This paper develops a production-inventory model which is subject to breakdowns, and studies the influence of outsourcing on the expected total cost and the fill rate in case of any failure in the production facility. To avoid shortages and aim at a higher fill rate when there are random breakdowns, the manufacturer has the option to purchase some quantities from an external supplier while repairing the production facility. In this paper, this transaction is formulated through different settings. First, the manufacturer has the option to purchase the items from an available supplier in the market. The manufacturer is also given the option to procure the required items from a predetermined supplier based on a contractual agreement. These scenarios are then compared with the setting in which the manufacturer keeps safety stock in case of breakdown. The results of this study show that using an external supplier, when the machine is prone to failures, improves the performance of the system. We have also shown that it is more beneficial for the manufacturer to collaborate with an external supplier rather than keep safety stock. The analysis is further elaborated using several numerical experiments.

Keywords: Machine failure; Fill rate; Imperfect production; Economic production quantity (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:201:y:2018:i:c:p:203-215

DOI: 10.1016/j.ijpe.2018.05.006

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