Two-Echelon Inventory Optimization for Imperfect Production System under Quality Competition Environment

Xinfeng Lai,Chun-Hung Chiu,Zhixiang Chen,Bibhas C. Giri

doi:10.1155/2015/326919

Xinfeng Lai, Chun-Hung Chiu + Show 2 more

Open Access

https://doi.org/10.1155/2015/326919

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Abstract

This paper develops two integrated optimization models of two-echelon inventory for imperfect production system under quality competition environment, in which the vendor’s production process is assumed to be imperfect, and JIT delivery policy is implemented to ship product from the vendor to the buyer. In the first model, product defect rate is fixed, and, in the second model, quality improvement investment is function of defect rate. The optimal policies of ordering quantity of buyer and shipment from vendor to buyer are obtained to minimize the expected annual total cost of vendor and buyer. Numerical examples are used to demonstrate the effectiveness and feasibility of the models. Sensitivity analysis is taken to analyze the impact of demand, production rate, and defect rate on the solution. Implications are highlighted in that both the vendor and the buyer can benefit from the vendor’s investing in quality improvement.

Highlights

Nowadays, quality is a very important competition weapon; manufacturing firms must produce perfect goods in a perfect production system to compete with rivals
Hou [29] considered an economic production quantity (EPQ) model with imperfect production processes, in which the setup cost and process quality are functions of capital expenditure. They studied the effects of an imperfect production process on the optimal production cycle time after capital investment strategies and process quality improvements are adopted
The main contributions of this paper lie in the fact that we extended the previous study on the vendor-buyer inventory model by considering the imperfect production condition and quality improvement investment and provided implications for practitioners in inventory decision

Summary

Introduction

Quality is a very important competition weapon; manufacturing firms must produce perfect goods in a perfect production system to compete with rivals. F. Hsu [19] developed an integrated vendor-buyer production-inventory model for items with imperfect quality and inspection errors. Hou [29] considered an EPQ model with imperfect production processes, in which the setup cost and process quality are functions of capital expenditure They studied the effects of an imperfect production process on the optimal production cycle time after capital investment strategies and process quality improvements are adopted. The main contributions of this paper lie in the fact that we extended the previous study on the vendor-buyer inventory model by considering the imperfect production condition and quality improvement investment and provided implications for practitioners in inventory decision.

Formulation of the Model

D: Annual demand of the buyer

A: Buyer’s transportation cost per shipment α0

Numerical Examples and Managerial Implications

Conclusions