Economic production quantity model for items with imperfect quality

Abstract

The assumptions necessary to justify the use of economic production quantity (EPQ/EOQ) models are rarely met. To provide mathematical models that more closely conform to actual inventories and respond to the factors that contribute to inventory costs, the models must be extended or altered. This paper hypothesizes a production/inventory situation where items, received or produced, are not of perfect quality. Items of imperfect quality; not necessarily defective; could be used in another production/inventory situation, that is, less restrictive process and acceptance control. The electronics industry gives good examples of such situations. This paper extends the traditional EPQ/EOQ model by accounting for imperfect quality items when using the EPQ/EOQ formulae. This paper also considers the issue that poor-quality items are sold as a single batch by the end of the 100% screening process. A mathematical model is developed and numerical examples are provided to illustrate the solution procedure.