Industrial Engineering Journal

Industrial Engineering Journal ›› 2016, Vol. 19 ›› Issue (3): 59-64.

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Optimal Trade Period and Production Batch of Manufacturer with Learning Effects and Defect Rate

  

  1. 1. Management School, Zhongshan Institute, University of Electronic Science and Technology of China, Zhongshan 528402, China;2. College of Management, Chaoyang University of Technology, Taichung 10617, China
  • Online:2016-06-30 Published:2016-08-31

Abstract:

Trade credit, while bringing the benefits of increasing sales to the sellers, also increases the disadvantages of opportunity cost and the default risk．The sellers should set the trade credit period as a decision variable as the production batch. The seller is, in this research, taken as an imperfect manufacturer who produces items with learning curve production costs and defect rate. An economic production quantity (EPQ) model is proposed, in which there are two decision variables as the trade credit period and the production batch. The model follows two assumptions, the first being that the annual demand rate in units is determined by both the trade credit period and the production batch and the second being the trade credit brings opportunity cost and default risk to the manufacturer. Then the properties of the objective function are derived, and it is shown that there exists at most one minimum point under certain conditions, and this has been proved by a numerical example. Finally, a sensitivity analysis is conducted to understand managerial insights such as that the stronger the ability to learn, the shorter the credit period, the smaller the production lot size, and the lower the profit and that the higher the defective rate, the shorter the credit period, the smaller the production lot size, and the lower the profit.

Key words: inventory, trade credit, learning effects, defect rate, optimization