Production and payment policies for an imperfect manufacturing system with machine maintenance and credit policies

This paper considers an imperfect manufacturing system with machine maintenance and credit policies. The manufacturer adopts the machine maintenance when the system is in the out-of-control state. The Supplier not only offers a credit period to settle the payment but also offers a cash discount to encourage the customer to pay the amount earlier. The interest earned is calculated based on retail price instead of purchase cost in most previous researches. The interest paid is not necessarily higher than the interest earned. The objective is to determine the retailer's production run time and payment time that minimise the expected total annual cost. The model can be used as a cost-saving mechanism for an engineer-to-order production system. From numerical experiments, we discuss how the machine maintenance cost, the defective cost and the percentages of defective products affect the manufacturer.