Incorporating a cost lessening distribution policy into a production system with random scrap rate

Abstract

This paper incorporates a cost lessening product distribution policy into a production system with random
scrap rate, with the purpose of cutting down producer’s inventory holding cost. The present study
reconsiders a production lot sizing problem examined by a prior paper and improves its replenishment lot
size solution in terms of stock holding cost reduction. An N+1 product distribution policy is used here in lieu
of the N multi-delivery plan adopted in prior study. Under the proposed policy, an initial installment of
finished products is delivered to customer for satisfying the product demand during producer’s production
uptime. Then, fixed quantity N installments of finished items are delivered to customer at a fixed interval of
time at the end of uptime. Mathematical modeling is used and as a result, the optimal production lot size
solution is derived. A numerical example with analysis is provided to show practical usage of research result
and demonstrate its significant savings in holding costs.