Meeting product demand by an imperfect EPQ-based model and an external source

摘要

This study considers meeting product demand by an imperfect economic production quantity (EPQ) model and an additional external source. Unlike the conventional EPQ model that assumes all products are of perfect quality and demand is satisfied by in-house fabrication, this paper examines an EPQ system with a random scrap rate and a portion of demand is met by an external source in order to reduce in-house production loads. A mathematical model for this hybrid production decision system is developed and the long-run average system cost is derived accordingly. Optimization technique is used to determine the most economic in-house lot size for the system. Numerical example with sensitivity analyses is provided to show applicability of our research result.