Optimization of a multi-product EPQ model with scrap and an improved multi-delivery policy

Abstract

This paper considers optimization of a multi-product economic production quantity(EPQ) model with scrap items and an improved multi-delivery policy. We extend thework of Chiu et al. (2013a) by incorporating an improved n + 1 multi-delivery planinto their model with an aim at reducing vendor’s inventory holding cost. Under such aspecific shipment policy, for each product an extra delivery of finished goods is madeduring production uptime to satisfy the product demand for the period of vendor’suptime. Then, when rework process comes to an end (i.e., the rest of the productionlot is quality assured) n fixed quantity installments of finished goods are delivered tobuyers at a fixed time interval. The objectives of this study are to determine the optimalrotation production cycle time that minimizes the long-run average system cost perunit time and reveals the effects of random scrap rate and the improved delivery policyon the optimal production cycle time. With the help of a mathematical model a closedformoptimal common cycle time is derived. Through a numerical example, practicalusages of obtained results and significant savings in vendor’s stock holding cost aredemonstrated.