Setup Cost Reduction Research Articles

Permissible Delay in Payments in the Two-echelon Inventory System with Controllable Setup Cost and Lead Time under Service Level Constraint

The single-vendor single-buyer integrated production-distribution inventory system has been an object of study for a long time, but little is known about the effect of investing in reducing setup cost and trade credit financing on the integrated inventory models. In this study an integrated production-distribution inventory model is presented for a single-vendor single-buyer supply chain with the consideration of vendor offers permissible delay period to buyer, buyer review his inventory using continuous review policy, vendor setup cost can be reduced through further investment, controllable lead time and Service Level Constraint (SLC). A mathematical model is derived to investigate the effects of setup cost reduction and permissible delay in payments on the integrated inventory system. This study develops an iterative procedure for determining the optimal solutions of inventory lot-size, lead time and total number of deliveries in one production run simultaneously with the objective of minimizing joint total expected cost whereas satisfying SLC of the buyer. A numerical example is presented to illustrate the model and sensitivity analysis has been carried out to illustrate the behaviors of the proposed model.

An optimal policy for a single-vendor and a single-buyer integrated system with setup cost reduction and process-quality improvement

The single-vendor single-buyer integrated production inventory system has been an object of study for a long time, but little is known about the effect of investing in reducing setup cost reduction and process-quality improvement for an integrated inventory system in which the products are sold with free minimal repair warranty. The purpose of this article is to minimise the integrated cost by optimising simultaneously the number of shipments and the shipment quantity, the setup cost, and the process quality. An efficient algorithm procedure is proposed for determining the optimal decision variables. A numerical example is presented to illustrate the results of the proposed models graphically. Sensitivity analysis of the model with respect to key parameters of the system is carried out. The paper shows that the proposed integrated model can result in significant savings in the integrated cost.

Supply chain coordination with defective items and quantity discount

This study develops an integrated inventory system involving defective items and quantity discount for optimal pricing and ordering strategies. The model analysed in this study is one in which the buyer orders a quantity, the vendor produces more than buyer's order quantity in order to reduce set-up cost, and then he/she offers an all-units quantity discount to the buyer. Our objective is to determine the optimal order quantity, retail price, mark-up rate, and the number of shipments per production run from the vendor to the buyer, so that the entire supply chain joint total profit incurred has a maximum value. Furthermore, an algorithm of finding the optimal solution is developed. Numerical examples are provided to illustrate the theoretical results.

A Collaborative Business Model for Imperfect Process with Setup Cost and Lead Time Reductions

This paper develops a collaborative business model for imperfect process with setup cost and lead time reductions. We propose a simple solution procedure to derive the optimal order quantity, lead time, delivery frequency and setup cost. Shortage during the lead time is assumed to be partially backordered. Numerical examples are carried out to show how the proposed model can result in a substantial cost savings over the traditional model.

Effective Investment to Reduce Setup Cost in a Mixture Inventory Model Involving Controllable Backorder Rate and Variable Lead Time with a Service Level Constraint

This paper investigates the impact of setup cost reduction on an inventory policy for a continuous review mixture inventory model involving controllable backorder rate and variable lead time with a service level constraint, in which the order quantity, setup cost, and lead time are decision variables. Our objective is to develop an algorithm to determine the optimal order quantity, setup cost, and lead time simultaneously, so that the total expected annual cost incurred has a minimum value. Furthermore, four numerical examples are provided to illustrate the results, and the effects of system parameters are also included for decision making.

Periodic inventory model with reduced setup cost under service level constraint

The underlying goal of JIT philosophy is to eliminate waste, which is possible only through certain measures such as reducing the lead time, crashing of the setup cost, improving the service level etc. All these measures are achievable through an extra investment. The present study investigates the effect of crashing of the lead time and setup cost in periodic review inventory model, where the demand during the protection interval follows the normal distribution under the service level constraint. Numerical example is presented to illustrate the results of the proposed model along with the sensitivity analysis.

International joint venture with double-sided moral hazard: payment arrangements and credit constraints

We analyse the formation of an international joint venture (IJV) between a multinational corporation (MNC) and a domestic firm with double-sided moral hazard. The MNC can imperfectly adapt a superior production technology, and the domestic firm can reduce set-up costs, for the IJV. We examine how set-up costs interact with borrowing constraints and different payment arrangements. Our findings include: (i) a better access to credits can make the domestic firm worse off, (ii) under credit constraints, a reduction in set-up costs has a smaller positive effect on both partners' profits, (iii) under moderate credit constraints, whereas either a better access to credits or a higher set-up costs increases the domestic firm's share of profits with ex ante payments, the effect can be the opposite with ex post payments, and (iv) profit-sharing always occurs with ex ante payments, with or without credit constraints, but not so with ex post payments. Copyright 2012 Oxford University Press 2011 All rights reserved, Oxford University Press.

EOQ Model with Controllable Lead Time, Setup Cost and Backordering Rate

This paper developed an EOQ model, in which the demand follows a general distribution, under the assumption that lead time can be shortened and setup cost can be reduced by added investment, and backorder rate depends on inventory level and price discount in the period of shortage. We proved the existence and uniqueness of optimal solution and proposed an algorithm searching for it. We find that order quantity, safety stock and inventory total cost can be normally reduced by shortening lead time and reducing setup cost, furthermore, backordering parameter and probability of shortage have a great impact on inventory total cost, so an enterprise should do its best to reduce probability of shortage, especially when backordering parameter is small.

An integrated inventory model with ordering cost and setup cost reductions under just-in-time purchasing

As the industrial environment becomes more and more competitive, supply chain management has emerged as a popular production and logistics strategy for many contemporary firms, and the just-in-time (JIT) purchasing plays a crucial role in such supply chain environments. The benefits of JIT purchasing include small lot sixes, frequent deliveries, reduction in lead times, decrease in inventory levels, lower setup cost and ordering cost, and close supplier ties. The purpose of this paper is to develop an integrated inventory model for minimizing the total joint annual costs incurred by the vendor and the purchaser. An algorithmic procedure is developed to find the optimal order quantity, lead time, ordering cost, setup cost and the number of deliveries simultaneously for the ease of normally distributed lead time demand. An illustrative example shows that the proposed model achieves a substantial saving over the traditional integrated model.

An integrated inventory model involving manufacturing setup cost reduction in compound Poisson process

The collaboration of vendor and buyer is one of the key factors for successful supply chain management. The most common strategy for a cooperative system is to propose an integrated replenishment plan. Almost all inventory models assume that setup cost is deterministic and is not subject to control. However, in many practical situations, setup cost can be reduced at an added investment. The paper assumes that setup cost can be reduced at an added investment and shortage is permitted during the lead time. This article relaxes the assumption that the demand of lead time is deterministic and is assumed to be a compound Poisson process. A model is derived to determine an optimal integrated inventory policy with controllable setup cost. The expected annual integrated total cost function is derived and a solution procedure is established to find out the optimal solution. Finally, a numerical example is provided to illustrate the solution procedure.

Supply chain coordination and setup cost reduction in case of asymmetric information

Previous research shows that asymmetric information triggers a decrease of lot sizes compared to the supply chain optimum. Thus, the setup costs per period are suboptimally high. To analyse, whether setup cost reduction can mitigate this effect, we extend the standard framework of lotsizing decisions under asymmetric information by allowing investments in setup cost reduction. We find that asymmetric information tends to lead to an overinvestment in setup cost reduction. The overall effect of setup cost reduction on supply chain performance is therefore ambiguous. We show that these results hold for a wide variety of investment functions.

The value of setup cost reduction and quality improvement on the optimal production run length and inspection schedules in a deteriorating production process

This paper presents an economic production quantity model taking into consideration of 1) investment in setup cost reduction; 2) investment in quality improvement; 3) investment in both setup cost reduction and quality improvement, to determine simultaneously optimal production run length and inspection schedules in a deteriorating production process. A simple and accurate algorithm is presented to locate the optimal production run length and then to find the optimal setup cost and optimal process quality simultaneously. A numerical experiment is carried out to compare the results of: 1) number of inspection schedules; 2) optimal production run length; 3) average cost per unit time of the proposed model to an existing model without considering the setup cost reduction and quality improvement. The results show that investment in setup cost reduction will result in reduction in primarily the optimal production run length means small lot size, while the investment in quality improvement results in number of inspections undertaken to be unity during each production run. The results show that investments in setup cost reduction and process quality improvements of a production process achieve some of the characteristics of JIT system such as small lot sizes and high quality.

Optimal cycle length and number of inspections in imperfect production processes with investment on setup cost reduction and quality improvement

The work presented in this paper is derived from an existing model for an imperfect process model (Moon et al., 2002) under constraint of setup time, and the total production time per cycle is equal to the cycle length. This paper considers the investment in setup cost reduction and quality improvement in: imperfect production process; imperfect production process with inspection and restoration. A solution algorithm using the Lagrangian approach with the objective of minimising the expected total cost is developed to simultaneously solve the cycle length, number of inspections, setup reduction and quality improvement for different products. Numerical examples are used to illustrate comparison of the performances with investment in setup cost reduction and quality improvement. [Received 11 August 2007; Revised 20 December 2007; Accepted 4 May 2008]

OPTIMAL JIT PRODUCTION AND DELIVERY LOT SIZE MODEL THAT CONSIDERS VENDOR REWORKING PROCESS AND VARIABLE SETUP COST

ABSTRACT Since defective items are inevitably produced in an imperfect manufacturing process, the rework process is performed to convert those defective products into finished goods. This study proposes an inventory model that considers the defect rate to conform the real production environment. Additionally successful lean production is making various efforts and continuous improvements to continuously reduce setup cost, while the reduction of setup cost alters the optimal lot-size. This research thus considers changeable setup costs caused by the effect of lean production in making production and delivery lot-size decisions with minimum total cost in the JIT supply chain.

Setting Planning Buffers in MRP Driven Manufacturing Networks Considering their Implications on Safety Stock Cost

Manufacturing companies face an ongoing trend towards more complex production and distribution networks that evolve dynamically, e.g. due to frequent changes in the product assortment. The production and distribution systems of many companies that produce large quantities of customer anonymous products are run according to the established material requirements planning (MRP) logic. The selection of the right planning parameters and their continuous adaptation in a dynamic environment is crucial for a cost efficient manufacturing process. We consider a multi-stage manufacturing system with sequence dependent setup cost, where demands and demand dates are calculated according to the MRP logic. The throughput time of each production stage consists of the actual processing time and a planning buffer as an additional time buffer to create optimisation potential for production sequencing to reduce setup costs. These time buffers also increase safety stocks held on the considered production stage or any subsequent production or distribution stage due to increased replenishment lead times. An optimisation model is formulated to determine cost optimal planning buffers with consideration of the inventory cost incurred by increasing safety stock. The setup costs incurred are incorporated via the determination of lot sizes on an aggregate level. We identify two major subproblems related to the estimation of average setup costs for different planning buffers and the determination of safety stock costs and propose adequate solutions. The model's validity is shown via a case study application for a cloth production process of an international household product manufacturer.

An integrated vendor–buyer inventory model with backorder price discount and effective investment to reduce ordering cost

The single-vendor single-buyer integrated production inventory system has been an object of study for a long time, but little is known about the effect of investing in reducing ordering cost on the integrated inventory models with backorder price discount and variable lead time. The purpose of this article is to investigate in the continuous review model with backorder price discount and variable lead time to effectively increase investment and to reduce the joint expected annual total cost. The integrated strategy discussed here is one in which the buyer orders a quantity, then the vendor produces n times order quantity in each production cycle, in order to reduce setup cost. In addition, the buyer offers backorder price discounts to the customers that may motivate the customers’ desire for backorders, and buyer ordering cost can be reduced through effective investment. An integrated inventory model is established to find the optimal solutions of order quantity, ordering cost, backorder price discount, lead time, and the number of shipments from the vendor to the buyer in one production run, so that the joint expected annual total cost incurred has the minimum value. Furthermore, numerical examples are used to demonstrate the benefits of the model.

Sequencing of parts on single-stage multifunctional machining systems using a chaos-embedded simulated annealing algorithm

This paper deals with the objective of determining an optimal part sequence on a single-stage multifunctional machining system (SSMS) with a view to achieve the broad objectives of cost minimization and time minimization. SSMS has become a preferred alternative for manufacturers to use the resource efficiently, owing to the flexibility and process variety offered by it. This paper formulates a mathematical model that considers the minimization of both set-up cost and time simultaneously. The option of hiring an additional fixture has also been considered that enables the reduction in tool magazine replenishment and re-fixturing operations, which in turn offers economic advantage by way of reducing set-up cost. This study has proposed a new heuristic by modifying the simulated annealing concept to solve the underlying problem. The conventional simulated annealing search scheme is replaced by a chaotic search that takes into account the ergodic and stochastic properties of chaotic systems. In order to restrict the premature convergence and to diversify the search space, a modified perturbation scheme has been employed. The performance of the proposed algorithm was tested on a simulated case study adopted from the literature and the results obtained reveal the effectiveness and scalability of the proposed algorithm. The results establish that the proposed approach is effective and reactive to severe disturbances and must take place in the manufacturing environment.

Inventory and investment in setup and quality operations under Return On Investment maximization

In this paper, we construct and analyze a Return On Investment (ROI) maximization model for inventory and capital investment in setup and quality operations under an investment budget constraint. Specifically, we show how such an ROI maximization model can be formulated and derive analytical results such as the conditions under which the inventory is reduced and for the determination of the unique global optimal solution. In addition, by applying the Reformulation-Linearization Technique (RLT), we show via numerical examples how this nonconvex optimization model can be solved effectively and how RLT may produce superior results to those from the conventional Cut Across the Board Rule (CABR). Various managerial insights are provided throughout the paper. For example, as the investment budget increases (or decreases), a fundamental shift of investment strategies (setup cost reduction vs. quality improvement) may be necessary so as to maximize ROI.

Managing quality improvement, setup cost and lead time reductions in a just-in-time integrated inventory model

This article investigates a just-in-time integrated inventory model with quality improvement, setup cost and lead time reduction. The objective is to simultaneously optimise the order quantity, setup cost, process quality level, number of deliveries and lead time. A solution procedure is suggested for solving the proposed model and a numerical example is considered to illustrate the impact of setup cost reduction with capital investment. The current model predicts a lower total cost, order quantity and number of deliveries compared with Yang, J-S. and Pan, J.C-H. (2004) 'Just-in-time purchasing: an integrated inventory model involving deterministic variable lead time and quality improvement investment', Int. J. Production Research, Vol. 42, pp.853-863. An integrated inventory model is helpful in breaking down the traditional barriers as it results in lower total relevant cost compared to the independent inventory policies of both purchaser and vendor. These results can be used to promote cooperation and to minimise the total system cost of integrated enterprises.

A note on “quality improvement and setup reduction in the joint economic lot size model”

In a recent paper, Affisco et al. [J.F. Affisco, M.J. Paknejad, F. Nasri, Quality improvement and setup reduction in the joint economic lot size model, European Journal of Operations Research 142 (2002) 497–508] propose a quality-adjusted joint economic lot size model that considers investments in quality improvement and setup cost reduction. In particular, they consider a single-vendor, single-buyer, deterministic demand economic lot-sizing problem, and they investigate the potential impact of economic investments in the vendor’s quality improvement and setup cost reduction efforts on the system-wide costs. However, the particular form of the investment function that they use to represent the cost of investments in quality improvement does not represent actual practice in many industries. Hence, in this note, we develop modified models for quality improvement and simultaneous quality improvement and setup cost reduction using a modified form of the investment function. Our fundamental results and conclusions are substantially different than those in Affisco et al. (2002).