Title: An economic production quantity (EPQ) model for a customer-dominated supply chain with defective items, reworking and scrap

Authors: Christoph H. Glock; Mohamad Y. Jaber

Addresses: Carlo and Karin Giersch Endowed Chair 'Business Management: Industrial Management', Department of Law and Economics, Technische Universität Darmstadt, Hochschulstr. 1, 64289 Darmstadt, Germany ' Department of Mechanical and Industrial Engineering, Ryerson University, 350 Victoria Street, Toronto M5B 2K3, Canada

Abstract: This paper investigates the production-inventory policy for a manufacturer operating in a supply chain environment where the manufacturer is not the chain leader. The chain leader dictates the size and the interval of the shipments. Large penalties set by the chain leader on short shipments preclude the permission of shortages. This might require the manufacturer to produce in larger, non-optimal lots to ensure that all orders are fulfilled as agreed upon with the chain leader. Larger lots, however, subjugate the manufacturer to the risk of an imperfect production process and reworks. A new mathematical model is developed that describes this situation and numerical results are discussed.

Keywords: supply chain management; SCM; shipment size; shipment time; lot sizing; imperfect production; reworking; scrap; economic production quantity; EPQ; customer-dominated supply chains; defective items; production-inventory policy; mathematical modelling.

DOI: 10.1504/IJSOM.2013.051831

International Journal of Services and Operations Management, 2013 Vol.14 No.2, pp.236 - 251

Published online: 30 Aug 2013 *

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