Using a Random Coefficient Regression Model to Jointly Determine the Optimal Critical Level and Lot Sizing

Abstract

This paper proposes an integrated preventive maintenance and economic production quantity model. A condition-based maintenance policy is described by a random coefficient regression model, based on which the monitored condition is divided into two parts: the actual condition and random error. Products are produced in batches and the system is monitored at the end of each batch. If the observed system condition either reaches or exceeds the critical level, the system should be renewed by preventive maintenance. However, if the actual system condition reaches the failure level during the production process, the system fails and should be renewed immediately. Based on these two renewal situations, we construct a model of expected cost per unit time using the renewal reward theory. The critical level and production lot size are decision variables, which can be obtained by minimizing the cost model. We also develop a simulation process to obtain the optimal results in another way and validate our proposed cost model. Finally, a real case study is given to demonstrate the model and the simulation process.

Keywords

• Economic production quantity
• condition-based maintenance
• renewal reward theory
• inventory
• preventive maintenance