Joint determination of target value and production run for a process with multiple markets

Abstract

Setting the target value (process mean) for an industrial process when its outputs are sold to quality-dependent customers is an important and challenging decision for quality and manufacturing managers. The determination of an appropriate process mean does not only affect the output rate of conforming units but also affects other manufacturing decisions such as finished product and raw material lot sizing policies. In this paper, we address the integrated targeting-inventory problem to determine simultaneously the optimal production cycle time and the target value that maximizes the total expected profit per unit of time. Depending on its quality characteristic, the output of the manufacturing process may be sold to different customers from the same market but with different quality requirements. The output rejected by original customers may be stored for some time and then sold to other customers in the same market at a reduced price. We built the developed mathematical model in Microsoft Excel and used SOLVER to search for the optimal production run and process mean. We also carried out a sensitivity analysis to study the effects of some problem parameters on the quality and inventory decisions.