A cost/benefit model for investments in inventory and preventive maintenance in an imperfect production system

Abstract

In this research, a cost/benefit model is developed for supporting investment strategies about inventory and preventive maintenance in an imperfect production system. The effect of such investments on the return is expressed as a function of measurable variables. Using this model, the decision maker can decide whether investments in inventory and preventive maintenance are necessary and how much to invest. This investment model is developed for an imperfect production system with imperfect product quality and supplied quantity. Investments in inventory and preventive maintenance increase service level for the customer and reduce the proportion of defective products, and hence affect stockout and backlog of supplied products and the delivery time to the customer. This model includes in its scope investment in inventory and preventive maintenance, manufacturing cost, inventory cost, backlog cost, stockout cost, and delay cost. This model can be used to evaluate the effects of investments on the financial cost/benefit and other relevant critical performance measures. This model can be solved by an iterative process using the Sequential Quadratic Programming Method. The optimal investment in inventory with respect to the service level and the optimal investment in preventive maintenance with respect to the proportion of defective items can be obtained first, and then other relevant costs can also be obtained.