Production order quantity for economical and quality consideration

Abstract In the conventional production-inventory management approach, the production order quantity is determined by referring to costs such as the ordering cost and inventory cost. However, the quality level being produced may change during the production process owing to process deterioration. Thus, under process deterioration, a production order quantity based solely on the conventional production-inventory management system may be overproduced, due to a lack of consideration of varied quality costs at different points of time, along with the production run length. Hence, for cyclical quality promotion and cost reduction, there is a motivation to extend the conventional production-inventory management approach by adding the process-quality design approach which considers the varied quality-related costs as a function of time. The decision variables include the initial setting, process tolerance, and production order quantity, which have to be determined simultaneously for true optimization so that the average total cost, which includes the setup cost for production reordering and process resetting, quality loss, and tolerance cost for process quality, and the inventory cost for production inventory, is minimized. An example of a production process subject to process deterioration is presented for illustrating the possible application of the proposed model.