Optimal inventory policy with reliability consideration and instantaneous receipt under imperfect production process

Abstract

As markets become more and more competitive, reliability has become a prevailing characteristic of the modern production systems operating in complex, dynamic and uncertain environments. Ensuring reliability for exceptional products requires stringent production control measures often with costs that are usually difficult to estimate. Yet not accounting for these in costs can lead to less efficient production systems. This paper suggests that the need to consider reliability and need for instantaneous receipt resembles an imperfect production process. The applicability of these factors is demonstrated in a simple reverse inventory model with an imperfect production process, where the unit cost of production is inversely related to reliability and directly related to demand. These objective functions are included to model the problem accurately. Under reasonable conditions, maximum positive cost savings are achieved when process reliability increases. Numerical examples and a sensitivity analyses are presented to illustrate the results of the proposed model and to draw managerial insights.

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