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

This paper considers optimization of a multi-product economic production quantity (EPQ) model with scrap items and an improved multi-delivery policy. We extend the work of Chiu et al. (2013a) by incorporating an improved n + 1 multi-delivery plan into their model with an aim at reducing vendor’s inventory holding cost. Under such a specific shipment policy, for each product an extra delivery of finished goods is made during production uptime to satisfy the product demand for the period of vendor’s uptime. Then, when rework process comes to an end (i.e., the rest of the production lot is quality assured) n fixed quantity installments of finished goods are delivered to buyers at a fixed time interval. The objectives of this study are to determine the optimal rotation production cycle time that minimizes the long-run average system cost per unit time and reveals the effects of random scrap rate and the improved delivery policy on the optimal production cycle time. With the help of a mathematical model a closedform optimal common cycle time is derived. Through a numerical example, practical usages of obtained results and significant savings in vendor’s stock holding cost are demonstrated.

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