Optimal lot-sizing of an integrated EPQ model with partial backorders and re-workable products: an outer approximation

Abstract

In this paper, we develop and optimise the lot-sizing policy in an integrated Economic Production Quantity (EPQ) model with partial backorders and re-workable products considering linear and fixed backordering costs. Time intervals, number of lots, and lot size are the decision variables of our model. The cost function includes the set-up costs, the holding costs, the goodwill loss costs, the fixed backorder costs, the backorder costs, the costs of reworking, the production costs, the disposal costs, and the screening costs. The profit function consists of the sale profits obtained from the sold products. The goal is to minimise the cost function and maximise the profit function under stochastic constraints simultaneously. A Lexicographic method is applied for integrating the conflicting objective functions. The integrated objective function, with stochastic constraints, is a Mix Integer Nonlinear Programming (MINLP) model. Accordingly, an Outer Approximation (OA) algorithm is provided for optimal lot-sizing the integrated EPQ model. Two numerical examples and a real large-scale example demonstrate the decent and acceptable performance of the presented OA with respect to the optimality criteria such as optimum solutions, complementarity, and taken iterations.