EPQ Model with Imperfect Quality Raw Material

Abstract

The classical economic production model (EPQ) has been extended in many directions to incorporate factors encountered in real-life situations. In this paper, an EPQ model that accounts for the cost of raw material needed for production is examined. It is assumed that the raw material acquired from the supplier contains a percentage of imperfect quality items. At the beginning of the inventory cycle, the raw material is received instantaneously, and a 100% screening process for detecting the imperfect quality items is conducted. Two different scenarios are considered. In the first, the imperfect quality items of the raw material are sold at a discounted price at the end of the screening period. In the second scenario, the imperfect quality items are kept in stock until the end of the inventory cycle and returned to the supplier when the next order is received.