Optimal production run length and capital investment in quality improvement with an imperfect production process

Abstract

The paper studies the effects of an imperfect production process on the optimal production run length when capital investment in process quality improvement is adopted. The mathematical model is derived to determine the optimal production run length and capital investment under the assumption of logarithmic investment function such that the total annual cost is minimized. In addition, an efficient algorithm is provided to find both the optimal production run length and the optimal process quality. Therefore, the optimal lot sizing and capital investment are appropriately determined. A numerical example is provided to illustrate the results and to assess the cost savings realized by adopting capital investment. Furthermore, some managerial implications are also included.