An Economic Production Quantity Model with Probabilistic Machine Breakdown and Multiple Shipments Policy

Abstract

The classical economic production quantity (EPQ) model was developed to manage inventory costs in companies last decade ago. This model is extended in various directions in recent years. The classic EPQ has some unrealistic assumptions. The model assumes that all products are perfect, while the production of defective items is inevitable in the real-world environment. Another assumption relates to the continuous demand satisfaction, which ignores the commonly used multiple shipments policy in practice. Finally, the classic model does not consider the probabilistic breakdown of the machine and the required maintenance activities. The present work aims to develop a new imperfect EPQ model under probabilistic machine failure, corrective maintenance, and multiple shipments policy. Two cases are investigated: 1- Considering the production of a fixed percentage of imperfect items 2- Considering no production of defective items. Due to the complexity of the problem, a numerical bisection method is utilized to solve the problem and finding the best possible production time. This method's performance is evaluated by comparing it to the obtained solutions by MATLAB optimization toolbox for genetic and simulated annealing algorithms. Sensitivity analysis is performed, and finally, some directions for future research are suggested.

Keywords

• inventory planning
• economic production quantity
• probabilistic corrective maintenance
• multiple shipments policy
• imperfect quality items