Proceedings of the 2011 International Conference on Advances in Supply Chain and Manufacturing

Management, Kharagpur, India, December 1618, 2011

_____________________________
*Corresponding author
Email-addresses: urvashi.sehrawat@gmail.com, shivrajpundir@yahoo.com

Integrated Model with Inflation and Volume Elasticity in Unreliable
Manufacturing Environment

Urvashi, S.R. Singh
Department of Mathematics, D.N. College, Meerut, U.P., India

This study develops an integrated production inventory model from the perspectives of both
the manufacturer and the retailer. The model assumes a varying rate of deterioration, partial
backordering, inflation, imperfect production processes and multiple deliveries with
reliability (of production process). The set-up cost can be reduced with investment in
flexibility improvement. The production rate has been specified as Volume flexible. Here,
non-production period, stock out period and the reliability of the production process are the
decision variables. A numerical example is given to validate the results of the model.
Keywords: Supply chain, Imperfect Production, Volume elasticity, Inflation, Shortages,
Reliability


1. Introduction
Reliability provides the probability that an item will perform its intended function for a
designated period of time without failure under specified conditions. In other words,
reliability looks at how long the product will work as designed. Technological developments
lead to an increase in the number of complicated systems as well as increase in the
complexity of the systems themselves. With remarkable advancements made in electronics
and communications, systems became more and more sophisticated, because of their varied
natures, these problems have attracted the attraction of scientists from various disciplines
especially the system engineer, software engineer and applied probability. An overall
scientific discipline, called reliability theory that deals with the methods and techniques that
ensure the maximum effectiveness of system (from know qualities of their component parts)
is developed. Due to very nature of subjects, the methods of probability theory and
mathematical statistics play an important role in the problem solving of reliability theory. In
business management, analytical models evolved for the purchasing behavior of the

individual consumer, credit risk and term structure, income determination under uncertainty
and many more relating subjects.
In the previous models implicitly assume that items produced are of perfect quality.
However, in reality, products are not always perfect but are directly affected by the reliability
of the production process employed to manufacture the product. Generally, increasing
production-run-time increases the probability of components of machine failure and
impatience of labor staff, and thus accelerates the deterioration of the quality of the
production process. This scenario occurs in many standard products. In the present literature,
Cheng (1989) proposed a general equation to model the relationship between production cost
and process reliability and flexibility. This was later on used by Maiti and Maiti (2005) and
Leung (2007) for their respective models. The classical inventory control models assume that
items are produced by perfectly reliable production process with a fixed setup cost. Several
authors like Rosenblatt and Lee (1986) & Cheng (1991), etc., extended the EOQ (Economic
Order Quantity) and EPLS (Economic Production Lot Size) models to imperfect production
processes, assuming non-zero defective items. Khouja and Mehrez (1994) assumed the
elapsed time until the production process shifts to out-of control state to be an exponentially
[Duncan (1956), Chiu (1975), Ben-Daya and Hariga (2000)] distributed random variable. The
effect of defective items on the lot sizing policy is noted in the works of Chakravarty and
Shtub (1987), Urban (1992) and Anily (1995). Chang (2004) investigated the inventory
problem for items received with imperfect quality. Huang (2008) discussed the necessary and
sufficient conditions for the existence of the optimal solution of an integrated production-
inventory model developed by Huang (2004), which allowed a vendor and a buyer to
minimize their expected integrated total cost function with an imperfect production process.
The objective of Chung (2008) was to improve the solution procedure presented in Huang
(2004). Recently, Singh and Sharma (2009) explore a production inventory model for
defective items with shortages. Singh and Urvashi (2009) developed a production model with
imperfect production process with stochastic demand rate. They considered the
manufacturing system of stochastically imperfect items with continuous stochastic demand
under budget and shortage constraints. Singh and Urvashi (2010) discussed an imperfect
production model with Weibull distribution deterioration rate and inflation. Items of
imperfect quality can be sold at a reduced selling price. Sana (2010) developed a model to
determine the optimal product reliability and production rate that achieves the biggest total
integrated profit for an imperfect manufacturing process. The basic assumption of the
classical Economic Manufacturing Quantity (EMQ) model is that all manufacturing items are

of perfect quality. The assumption is not true in practice. Most of the production system
produces perfect and imperfect quality items. In some cases the imperfect quality (non-
conforming) items are reworked at a cost to restore its quality to the original one. Rework
cost may be reduced by improvements in product reliability (i.e., decreasing in product
reliability parameter).
Now-a-days, with the advent of multi-nationals, there is a stiff competition in the
market and the managers implement flexible manufacturing system (FMS) for improving
production efficiency. Normally, unit production cost is assumed constant. But, in reality,
production cost depends on the cost of use draw-materials, cost paid due to the labourers,
electricity, etc. and wear and tear costs for the machines. Thus the machine production rate is
very important in the case of production-inventory systems and is a decision variable in the
case of FMS. Hence the unit production cost becomes a function of production rate consisting
of (i) a constant, (ii) inversely proportional and (iii) directly proportional part with respect to
production rate. Silver (1984) discussed assuming a common production in the context of
manufacturing equipment dedicated to the production of a family of items, Gallego (1993)
extended the model of Silver (1984) using different production cycles for different items.
Khouja and Mehrez (1994) and Khouja (1995) extended the economic production lot size
(EPLS) models to an imperfect production process with a flexible production rate. Khouja
and Abraham (2005) developed a production) model with a flexible production rate. Sana and
Chaudhari (2003), Sana et al. (2004) discussed the effect of flexible production rate with
different conditions. Sana et al. (2007) and Sana and Chaudhuri (2007) extended the EPLS
model which accounts for a production system producing items of perfect as well as
imperfect quality with volume FMS. Sana (2010) assuming the percentage of defective items
varies nonlinearly with production rate and production-run-time.
In the past many studies in inventory models did not consider the influence of
inflation. This was due to the belief that inflation would not influence the inventory policy to
any significant degree. This belief is unrealistic since the resource of an enterprise is highly
correlated to the return on investment. The concept of the inflation should be considered
especially for long-term investment and forecasting. Sarker et al. (2000) developed a supply
chain model to determine an optimal ordering policy for deteriorating items under inflation,
permissible delay of payment and allowable shortage. Moon and Lee (2000) investigated the
impact of inflation on unit cost. Wee and Law (2001) applied the discount cash-flow
approach to an inventory model where item deteriorates over time. Chang (2004) propose an
inventory model for deteriorating item under inflation. Jaggi et al. (2006) developed a model

with deteriorating item over a finite planning horizon and DCF approach. Lo et al. (2007)
discussed the effect of inflation with constant demand rate. Singh and Singh (2008)
investigated inventory model with deterioration under inflationary environment. Yang et al.
(2010) discussed an economic order quantity (EOQ) model, in which (1) shortages are partial
back- logging to reflect the fact that longer the waiting time; the smaller the backlogging rate,
(2) the effects of inflation and time value of money are relevant or vital, and (3) the
replenishment cycles and the shortage intervals are time- varying.
Although a number of studies have been done on the imperfect production but the
most of the researchers have not considered the study of imperfect production models with
the effect of inflation and the concept of flexibility and reliability in supply chain
environment. Due to effect of unreliability items are non-conforming in nature and reworked
again. So, considerations of whole the environment in our model make the study suitable for
contemporary business environment.
In the present work, a supply chain model is considered, with a varying rate of
deterioration under imperfect production processes, partial backordering, reliability of the
production process and inflation is developed. Uniform distribution and Weibull distribution
is used for the deteriorating items. We apply the discount cash flow (DCF) approach and
classical optimization technique to determine the optimal solution. The model is formulated
to minimize the cost. The model is illustrated with a numerical example.

2. Assumptions and Notations
The proposed inventory model is developed under the following assumptions and notations
2.1 Assumptions: following assumptions are given below:
(1) The production process may shift from in-control state to out-of-control state. An elapsed
time is arbitrarily distributed with finite mean and variance.
(2) All defective items are detected at the end of each production cycle, and there is rework
cost for defective items. The rework occurs on the different production process. This
study considered its rework cost only.
(3) Multiple deliveries per order are considered. The planning horizon is finite and the cycles
during the planning horizon are continuous.
(4) Production rate is taken to be flexible in nature.
(5) Shortages are allowed which are partially backlogged



2.2 Notations: Following notation are given below
P(D) Production rate is demand dependent i.e., P (D) = KD
D Demand rate is taken to be constant
i The reliability of the production process (a decision variable)
B Fraction of retailers demand backordered
S Selling price
r The difference between the discount rate & inflation rate
g Scale parameter of the deterioration rate of raw material
h Scale parameter of the deterioration rate of raw material
o Scale parameter of the deterioration rate of finished goods
| Scale parameter of the deterioration rate of finished goods
Q
w
Raw materials order quantity per order
Q
m
Manufacturers finished goods production quantity per production
Q
r
Retailers received quantity per delivery from the manufacturer
k The number of delivery per order (a decision variable)
T
1
The production period
T
2
The non-production period
T
3
Period that a retailer is not out of stock
T
4
Period that a retailer is out of stock (a decision variable)
T
5
Time period between deliveries T5 = T/k = T3 + T4
T Length of the cycle, T = T1 + T2
I
w
(t
1
) Raw materials inventory level at any time t1, 0 t1 T1
I
mi
(t
i
) Manufacturers finished goods inventory level at any time ti, 0 ti Ti
I
ri
(t
i
) Retailers finished goods inventory level at any time t
i
, 0 t
i
T
i
, i = 3, 4
C
1w
Manufacturers ordering cost per order cycle
C
1m
Manufacturers setup cost per production cycle (a decision variable)
C
1r
Retailers ordering cost per order cycle
C
2w
Raw materials per unit holding cost per unit time
C
2m
Manufacturers finished goods per unit holding cost per unit time
C
2r
Retailers finished goods per unit holding cost per unit time
C
3
Retailers finished goods per unit backlog cost per unit time
C
4
Retailers finished goods per unit shortage cost for lost sale
C
5
Manufacturers finished goods per unit rework cost

C
w
Raw materials per unit cost
C
m
Manufacturers finished goods per unit cost
C
r
Retailers finished goods per unit cost
MI
m
Manufacturers finished goods maximum inventory level
MI
r
Retailers finished goods maximum inventory level
TUC
w
Raw materials present worth total cost per unit time
TUC
m
Manufacturers present worth total cost per unit time
TUC
r
Retailers present worth total cost per unit time
TUC The present worth total cost per unit time
X An exponential random variable that depends on P and denotes the elapsed
time until the process shifts to the out-control state
1/f (P) Mean of X. Here f (P) is an increasing function of P

3. Formulation of the Model
Here, we focused on manufacturer-retailer co-operation; there are two stages in our model.
The first stage is the manufacturers production system. The manufacturer purchases raw
materials from outside suppliers and delivers the fixed quantities to the manufacturers
warehouse at a fixed-time interval. The manufacturer withdraws raw materials from the
warehouse to produce the finished goods. The second stage is the retailers inventory system.
Fixed quantities of finished goods with multiple deliveries are delivered to the retailer at a
fixed-time interval.

Figure 1: The raw materials inventory system
The raw materials inventory system is shown in Figure 1. A supplier procures the raw
materials and delivers the fixed quantities, Q
w
, to the manufacturers warehouse at a fixed-
I
w
(t
1
)
Q
w

0
t
1

T
1

time

time interval. The manufacturer withdraws raw materials from the warehouse. During the T
1

time period, the inventory level decreases due to both the manufacturers demand and
deterioration.

Figure 2: The manufacturers inventory system
The manufacturers inventory system shown in Figure 2 can be divided into two independent
phases depicted by T
1
and T
2
. Each phase has its own time unit t
i
, which starts from the
beginning of the phase, T
i
. During T
1
time period, there is an inventory buildup and hence
deterioration becomes effective. At t
1
= T
1
, the production stops and the inventory level
increases to its maximum, MI
m
. There is no production during T
2
time period and the
inventory level decreases due to demand and deterioration. The inventory level becomes zero
at t
2
= T
2
. The dotted line if Figure 8.2 is the retailers inventory level when it is not out of
stock. The items of the first delivery are made in the previous cycle.
The change in retailers inventory level is depicted in Figure 3. Since P >> D, we
assumed that the initial delivery is made at t
3
= 0 in the retailers inventory system. Part of
stock is delivered towards backorders, leaving a balance of MI
r
units in the initial inventory.
During T
3
time period, the inventory level decreases due to both demand and deterioration. At
t
3
= T
3
,

the inventory level is zero. During T
4
time period, part of the shortage is backlogged
and part of its results in lost sales. Only the backlogged items are replaced in the next
replenishment. There are k deliveries in T = T
1
+ T
2
time period.
I
mi
(t
i
)
0
T
1

time
MI
mi

T
3


t
1
t
2

T
2

T= T
1
+T
2



Figure 3: The retailers inventory system

3.1. Manufacturers Raw Materials Inventory System
The manufacturers raw materials inventory system at any time t
1
can be represented by the
following differential equation:
h 1
w 1 1 w 1 1 1
Q `(t ) iP(D) ght Q (t ) , 0 t T

= s s . (3.1)
Using the boundary condition,
w 1
Q (T ) 0, = the first-order differential equation can be
solved is
1
h h
1
1
T
gt gu
w 1 1 1
t
Q (t ) iP(D)e e du , 0 t T

= s s
}
. (3.2)
Based on Figure 1 and
w w
I (0) Q , = the maximum inventory level of the raw materials, i.e.,
the order quantity per order from outside suppliers is
1
h
T
gu
w
0
Q iP(D) e du =
}
. (3.3)
3.2. The Present worth ordering cost:-
There is an initial replenishment ordering cost at the start of the cycle.

w 1w
OR C = . (3.4)
3.3. The Present worth holding cost
Inventory is carried during the T
1
time period.
0
T
3

time
MI
r


t
3
t
4

T
4


T
1
+T
2


T
5
= T
3
+T
4


1
1
T
rt
w 2w w 1 1
0
HD C Q (t )e dt

=
}
. (3.5)
3.4. The Present worth item cost
The item cost includes the loss due to deterioration as well as cost of the item sold. Because
the order is done at t
1
= 0, is
w w w
IT C Q = . (3.6)
3.5. The Present worth total cost
For raw materials, the present worth total cost per unit time during the cycle is the sum of the
ordering cost (OR
w
), the holding cost (HD
w
) and the item cost (IT
w
) is
w w w
w
OR HD IT
TUC
T
+ +
= . (3.7)
3.6. Manufacturers Finished Goods Inventory System
In Figure 8.2, the inventory system without delivery can be represented by the following
differential equation:
1
m1 1 1 m1 1 1 1
Q `(t ) iP(D) D t Q (t ) , 0 t T

= s s . (3.8)
1
m2 2 2 m2 2 2 2
Q `(t ) D t Q (t ) , 0 t T

= s s . (3.9)
Using the boundary condition,
m1 m2 2
Q (0) 0 and Q (T ) 0, = = the first-order differential
equation can be solved is
1

1
t
t u
m1 1 1 1
0
Q (t ) (iP(D) D)e e du , 0 t T

= s s
}
. (3.10)
2

2
2
T
t u
m2 2 2 2
t
Q (t ) De e du , 0 t T

= s s
}
. (3.11)
Based on Figure 8.2 and
m2 m
Q (0) MI , = the manufacturers maximum inventory level is
2

T
u
m
0
MI D e du =
}
. (3.12)
The production quantity is
m 1
Q iP(D)T = . (3.13)
3.7. The Present worth set-up cost
At the start of the cycle, the cycle has an initial production set-up cost is
1m
SE C = . (3.14)

3.8. The Present worth holding cost
Inventory is carried during the T
1
and T
2
time periods. If this system does not consider the
retailers, all of the holding costs belong to the manufacturer. They are the first two terms in
Eq. (3.15). If this system considers the retailer, the holding costs of the items that are
delivered to the retailer which belong to the retailer should be subtracted from the holding
cost of the manufacturer.
1 2
1 1 2
3
3 5
T T
rt r(T t )
m 2m m1 1 1 2m m2 2 2
0 0
T
k 1
rt irT
2m r3 3 3
i 0
0
HD C I (t )e dt C I (t )e dt
C I (t )e dt e
+

=
= +

`

)
} }

}
. (3.15)
The number of defective items N in a production cycle is
N=
1
1 1
1 1
0
( ) ( )
1
whenX T
P D T X whenX T
t e
u
e
+ +
>

<

+
. (3.16)
The distribution function of out-control state is G (X) =
( )
1
f P X
e

such
that
( )
( ) ( ) 1
0 0
f P X
dG X f P e dX


= =
} }
.The exponential distribution has often been used to
describe the elapsed time to failure if many components of the machinery system. The mean
time to failure is decreasing function of P.
Therefore, the expected number of defective items in a production cycle is
1
1 1
1
0
1 1
( ) ( ) ( )
1 1
( )
( ) ( ) ( ) ( )
1
0
T
P D T X f P
f P X
E N P D T X dG X e dX
t e
t e u
e
u
e
+ +
+ +

= =
}
+
}
(3.17)

f (X) is a probability density function of X
3.9. The present worth rework cost
Rework occurs at t = T
1
. The rework cost can be expressed approximately as it includes the
setup cost, material cost and so on.
1
5
0
1 1
( ) ( ) ( )
1 1
( ) ( )
{ }
0
m
m
P D T X f P
f P X rT
RW C e dX
m
t e u
e

=
+ +

=
}
. (3.18)

3.10. The Present worth item cost

The item cost includes the loss due to deterioration as well as the cost of the item sold.
Because set-up is done at t
1
= 0,
m m m m 1
IT C Q C iP(D)T = = . (3.19)
3.11. The Present worth total cost per cycle
Therefore, the present worth total cost during the cycle is the sum of the set-up cost (SE), the
holding cost (HD
m
) and the item cost (IT
m
).
m m
m
SE HD IT RW
TUC
T
+ + +
= . (3.20)
3.12. Retailers Finished Goods Inventory System
In Figure 3, the retailers inventory system can be represented by the following differential
equations:
1 r3 3
3 r3 3 3 3
3
dQ (t )
D t Q (t ) , 0 t T
dt

= s s . (3.21)
r4 4
4 4
4
dQ (t )
BD , 0 t T
dt
= s s . (3.22)
The first-order differential equation is solved using the boundary condition,
r3 3 r4
Q (T ) 0 and Q (0) 0, = = one has

3

3
3
T
t u
r3 3 3 3
t
Q (t ) De e du , 0 t T

= s s
}
. (3.23)
r4 4 4 4 4
Q (t ) BDt , 0 t T = s s . (3.24)
Based on Figure 3 and
r3 r
Q (0) MI , = the retailers maximum inventory level is
3

T
u
r
0
MI D e du =
}

3
T
1 m
3
3
m 0
0
T (u )
D du D T
m! 1
+
=
| | | |
= ~ +
| |
+
\ . \ .

}
. (3.25)
The quantity per delivery to the retailer is
1
3
r r 4 3 4
T
Q MI BDT D T BDT
1
+
| |
= + ~ + +
|
+
\ .
. (3.26)
3.13. The Present worth ordering cost
The delivery has an initial ordering cost C, at the start of the delivery.
1r
OR C = . (3.27)

3.14. The Present worth holding cost
Inventory is carried during the T
3
time period.
3
3
T
rt
r 2r r3 3 3
0
HD C I (t )e dt

=
`

)
}
. (3.28)
3.15. The Present worth backlogging cost
Shortages occur during T
4
time period.
| |
4
3 4
T
r(T t )
3 r4 4 4
0
BA C I (t ) e dt
+


=
`

)
}
. (3.29)
3.16. The Present worth lost sale cost
Lost sale occurs during T
4
time period. During this time period, the complete shortage is dT
4

and the partial backlog is BdT
4
. The difference between them indicates the lost sales.
( )
4
3 4
T
r(T t )
4 4
0
LS C D BD e dt
+


=
`

)
}
. (3.30)
3.17. The Present worth item cost
The item cost includes the loss due to deterioration as well as the cost of the item sold.
Because order is done at t = 0 and t = T
3
+ T
4
,
( )
3 4
r(T T )
r r r r 4
m
3 4
r r r 4
m 0
IT C I C (BDT )e
r(T T )
C I C BDT
m!
+

=
= +
| |
+
| = +
|
\ .

. (3.31)
3.18.The Present worth total cost per delivery
Therefore, the present worth total cost during the delivery is the sum of the ordering cost
(OR), the holding cost (HD
r
), the backlog cost (BA), the lost sale cost (LS) and the item cost
(IT
r
).
'
r r r
r
OR HD BA LS IT
TUC
T
+ + + +
= . (3.32)
3.19. The Present worth total cost per cycle
There are k deliveries per cycle. The fixed-time interval between the deliveries is
5
T T k. =
5
k 1
irT '
r r
i 0
TUC TUC e

=
=



5
rT
r r r
rT
OR HD BA LS IT 1 e
T 1 e

| |
+ + + +
| |
=
|
|
\ .
\ .
. (3.33)
The time periods can be computed by applying the Taylors series expansion. In order to
solve the objective function, represent T
1
by T
2
. From
m m1 1 m2
MI I (T ) I (0), = = one has
1 2

1
T T
T u u
0 0
(rP 1)e e du e du

=
} }
. (3.34)
For a very small o value, the second-and higher-order terms of o are neglected. Eq. (3.34)
can be simplified as
( )
1 1
1 2
1 2
T T
iP 1 T T
1 1
+ +
| | | |
=
| |
+ +
\ . \ .
. (3.35)
Since T
1
in (3.35) is a high power equation, it is difficult to solve analytically for the value of
T
1
. When
1
T 1, the method used in Misra (1975), where
1
1
T 1
+
+ is neglected,
results in the following approximate value for T
1
.
( )
1
2
1 2
1 T
T T
iP(D) 1 1
+
| |
~
|
+
\ .
. (3.36)
The present worth total cost per unit time of the manufacturer and retailer is the sum of
TUC
w
, TUC
m
and TUC
r
. Since
3 5 4 5 1 2
T T T , T T kandT T T , = = = + the problem can be
stated as an optimization problem and it can be formulated as
Minimize TUC (P,i,k,T
2
,T
4
) = TUC
w
+ TUC
m
+ TUC
r
, .... (3.37)
Subject to: 0 T
2
, 0 T
4

T
.
k
. (3.38)
4 Solution Procedure
The optimization technique is used to minimize (3.37) to derive P, i, T
2
and T
4
as follows:
Step 1: Since the number of delivery per order k, is an integer value, start by choosing
an integer value of k 1.
Step 2: Take the partial derivatives of TUC (P, i, k, T
2
, T
4
) with respect to P, i, T
2
and T
4
, and
equate the results to zero. The necessary conditions for optimality are
2 4 2 4
2 4 2 4
2 4
TUC(P,i, k, T , T ) TUC(P,i, k, T , T )
0, 0,
P i
TUC(P,i, k, T , T ) TUC(P,i, k, T , T )
0and 0
T T
c c
= =
c c
c c
= =
c c
.

These simultaneous equations can be solved for P, i, T
2
and T
4.
Step 3: Using P, i, T
2
and T
4
found at step 2, substitute into Equation (3.37) and drive
TUC (P, i, k, T
2
, T
4
).
Step 4: Drive them
1 3 5 w m r w m r
T ,T ,T ,T ,Q ,Q ,Q ,TUC ,TUC andTUC
- - - - - - - - - -
.

5. Numerical Illustration
Optimal production and replenishment policy to minimize the present worth total system cost
may be obtained by using the methodology proposed in the preceding sections. The following
numerical instance is illustrated in the model. On the basis of previous studies, let us
considered the following data in proper units: Demand rate D = 600; Ordering cost C
1w
= 70;
C
1r
= 50; Holding cost C
2w
= 0.8, C
2m
= 1, C
2r
= 1.2; backlog cost C
3
= 15; Sale cost C
4
= 10;
Rework cost C
5
= 15; Item cost C
w
= 12, C
m
= 15, C
r
= 20; Deterioration rate g = 0.06, h =
2.5, o = 0.07, | = 2.5; Inflation rate r= 0.08; Fraction backordered B = 1; An elapsed time
until shift is exponentially distributed with = 0.005; Percentage of defective items is u =
0.08.
(1) In this illustration, TUC* is 10969.19 while the optimal values of
* *
1 2 3 4
k ,T ,T ,T ,T
- - -
are 4,
0.75, 1, 0.32 and 0.25 respectively. The reliability of the production process i* = 0.0975,
P*=600. The set up cost is 98.56 units.
(2) If the optimal solution is derived solely from the raw materials view, k* is 3 and TUC
-

is 1210.27, an increase of 281.62 per unit time as compared with our model. If, the
optimal solution is derived solely from the manufacturers view, k*is 2 and TUC
-
is
11572.71, an increase of 644.06 per unit time as compared with our example. The reason
is the entire retailers cost will increase. If, the optimal solution is derived solely from the
retailers view, k*is 5 and TUC
-
is 10994.21.
(3) When k increases, T1, T2 will increase and T3, T4 and T5 will decrease. The reason is
multiple deliveries will increase the number of produced units to avoid the excess
inventory as well as reliability of production process increase.
(4) When there is no defect (i.e.u = 0), k* is 4 and TUC
-
is 10928.27. Since the perfect
production process will not produce any defective items, there is no rework cost, a
decrease of 0.38 per unit time as compared with our example.



Table 1: The numerical results for illustrated example
k T
1
T
2
T
3
T
4
I Q
w
Q
m
Q
r
TUC
w
TUC
m
TUC
r
TUC
1 0.64 0.85 0.50 0.38 0.0962 476.98 479.91 211.89 3589.18 3881.66 4261.25 11731.09
2 0.68 0.91 0.44 0.34 0.0967 483.06 486.51 219.15 3579.05 3857.57 4136.09 11572.71
3 0.73 0.94 0.38 0.29 0.0971 494.56 494.77 224.00 3539.81 3864.71 3806.75 11210.27
4 0.75 1.00 0.32 0.25 0.0975 506.78 502.46 216.09 3549.01 3870.06 3550.12 10969.19
5 0.78 1.03 0.27 0.21 0.0981 521.17 509.33 204.66 3610.99 3881.73 3501.49 10994.21
6 0.81 1.08 0.23 0.17 0.0987 539.01 514.21 197.79 3619.48 3884.33 3949.14 11451.95
7 0.84 1.14 0.19 0.14 0.0992 547.29 519.45 192.99 3626.49 3892.73 4156.52 11673.74
8 0.87 1.18 0.15 0.14 0.0998 556.09 524.33 186.52 3633.60 3910.44 4171.85 11716.89
9 0.90 1.22 0.11 0.14 0.1004 574.11 532.91 181.50 3649.13 3917.48 4231.98 11799.59
10 0.93 1.27 0.08 0.11 0.1008 583.82 539.41 174.91 3654.94 3924.91 4247.41 11827.26
11 0.96 1.31 0.05 0.11 0.1012 592.82 546.09 169.36 3672.62 3933.59 4264.11 11870.32
12 0.98 1.35 0.03 0.11 0.1016 601.37 553.02 162.02 3684.91 3941.11 4316.11 11942.13
13 1.00 1.38 0.01 0.11 0.1020 607.55 562.56 157.44 3693.90 3950.95 4609.16 12254.01

Table 2: Sensitivity Analysis
-10% changed -5% changed +5% changed +10% changed
T
2
* T
4
* T
2
* T
4
* T
2
* T
4
* T
2
* T
4
*
C1w 0.97 0.23 0.97 0.23 0.98 0.23 0.99 0.23
C1m 0.97 0.23 0.97 0.23 0.98 0.23 0.99 0.23
C1r 0.95 0.23 0.97 0.23 0.99 0.23 1.00 0.23
C2w 0.99 0.23 0.98 0.23 0.97 0.23 0.97 0.23
C2m 0.99 0.24 0.98 0.23 0.97 0.23 0.97 0.23
C2r 0.99 0.23 0.98 0.23 0.97 0.23 0.97 0.24
C3 0.97 0.26 0.97 0.23 0.98 0.22 0.99 0.21

C4 0.96 0.24 0.97 0.24 0.99 0.23 0.99 0.22
C5 0.98 0.23 0.98 0.23 0.98 0.23 0.98 0.23
Cw 0.99 0.23 0.98 0.23 0.97 0.23 0.97 0.23
Cm 0.99 0.23 0.98 0.23 0.97 0.23 0.97 0.23
Cr 0.87 0.23 0.99 0.22 0.97 0.22 0.96 0.26
G 0.98 0.23 0.98 0.23 0.98 0.23 0.97 0.23
H 0.98 0.23 0.98 0.23 0.98 0.23 0.98 0.23
o
1.00 0.23 0.99 0.23 0.97 0.23 0.96 0.23
|
0.98 0.23 0.98 0.23 0.98 0.23 0.98 0.23
R 0.96 0.23 0.97 0.23 0.99 0.24 1.00 0.24
B 0.87 0.30 0.92 0.27 1.02 0.20 0.65 0.25

0.98 0.23 0.98 0.23 0.98 0.23 0.98 0.23
u
0.98 0.23 0.98 0.23 0.98 0.23 0.98 0.23


Figure 4: Graphical representation of convexity of inventory system

0.5
5
0.75
5
1
1.25
5
1.5
5
0.2
2
0.3
3
20000
0
40000
0
60000
0
0.5
0.75
1
1.25
1.5
T
2

T
4


6. Conclusion
Customers' needs for reliability; cost and schedule a top priority. That's why we use a process
to build reliability throughout our product development cycle. The reliability risks for
technology implementation are reduced as the technology progresses through the
development cycle. Thus, the reliability risks for a product can be accessed from the maturity
of the underlying technologies. Reliability of the production system is considered here. We
have taken that imperfect product go back to manufacturing companies for finishing. The
model developed here can help the manager in managing any major problem when unit cost
of production decreases with high demand. In consequences, when the process reliability
increases, the optimum total cost decreases proportionately. The procedure is commonly
applicable to all production and inventory policy decisions.
Our results show how an increase in product quality and demand may lead to
decreased unit cost of production firms with large demand for the special type of items where
100% inspection is desired like costly electronic and electrical gadgets. Multiple deliveries
are the most important policies to reduce inventory. The integrated decision also results in a
lower optimal joint cost when compared with an independent decision by the manufacturers
or the retailers. A numerical example and sensitivity analysis are presented to illustrate the
model.

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