An optimal setup cost reduction and lot size for economic production quantity model with imperfect quality and quantity discounts

The purpose of this paper concentrates on an economic production quantity model with the factors of imperfect quality and quantity discounts, in which the inspection action occurs during the production stage. There is specific consideration of there being a finite production rate, and the quantity discounts offered by the supplier serves the purpose of stimulating buying greater quantities. This is in contrast to EPQ models that do not take these added factors into consideration. The objective of this paper is to determine the setup cost reduction, which is a function of capital investment, and inven- tory lot size. An alternative solution procedure was developed that does not employ the Hessian Matrix concavity in the expected total profit. We develop an algorithm to determine the optimal solution for this model. Theoretical re- sults are discussed and a numerical example is proposed. Managerial insights are also examined.

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