An EPQ Model with Imperfect Production Systems with Rework of Regular Production and Sales Return

The Economic Production Quantity (EPQ) model is commonly used by practitioners in the fields of production and inventory management to assist them in making decision on production lot size. The common assumptions in this model are that all units produced are perfect and shortages are not allowed. But, in real situation the defective items will be produced in each cycle of production and shortages and scrap are possible. These assumptions will underestimate the actual required quantity. Hence, the defective items can not be ignored in the production process. Rework process is necessary to convert those defective into finished goods. This study proposes EPQ model that incorporates both imperfect production quality and falsely not screening out a proportion of defects, thereby passing them on to customers, resulting in defect sales returns. To active this objective a suitable mathematical model is developed and the optimal production lot size which minimizes the total cost is derived. An illustrative example is provided and numerically verified. The validation of result in this model was coded in Microsoft Visual Basic 6.0.