OPTIMAL LOT-SIZING POLICY FOR A FAILURE PRONE PRODUCTION SYSTEM WITH INVESTMENT IN PROCESS QUALITY IMPROVEMENT AND LEAD TIME VARIANCE REDUCTION

To survive in today's competitive market, it is not enough to pro-duce low-cost products but also quality-related issues and lead time needs to be considered in the decision-making process. This paper extends the previous research by developing a stochastic economic manufacturing quantity (EMQ) model for a production system which is subject to process shifts from an in-control state to an out-of-control state at any random time. Moreover, we consider the option of investment to increase the process quality and decrease the lead-time variability. Closed-form solutions of the proposed models are obtained by applying the classical optimization technique. Some lemmas and theorems are developed to determine the optimal solution of the decision vari-ables. Numerical results are obtained for each of these models and compared with those of the basic EMQ model without any investment. From the numer-ical analysis, it has been observed that our proposed model can significantly reduce the cost of the system compared to the basic model.