ANALYSIS ON ECONOMIC

PRODUCTION ORDER QUANTITY

AND QUALITY

SUBMITTED BY-
HRiSHIKESH MAHAPATRA-UEMF16009
SAURAV PATTANAIK-UEMF16016
PRIMARY PURPOSE
The purpose of this research is to integrate a conventional production-
inventory management approach and a process-quality design approach
so as to promote quality and reduce cost

The resolving criteria for production ordering problem should not only
be limited to the costs involved in the production process but should also
include the quality related costs incurred after the delivery of goods to
the customers

The Taguchi quality loss function is introduced to assess quality loss in a

system arising from quality value deviating from its designed target. This
assessment also evaluates the quality related costs after the delivery of
goods to the customers.

Thisstudy incorporates the classic EPQ model of a production-inventory

management approach with the process-quality design approach to
ensure that decisions made at the early production planning and process
design stage are able to effectively reduce costs and enhance quality
RESEARCH METHODOLOGY
Conventional inventory decision problems are solved by
offsetting economic criteria, such as ordering cost and
holding cost, to determine economical production quantity
for a cycle time Q/D.

Other aspects ignored in conventional inventory decision

problems are the variations in unit costs and quality levels
resulting from process designs that differ from one another.
These variations are a concern, since on-line quality
improvement leading to process redesign may occur after
production and inventory decisions have been made

Other than the resetting and ordering costs involved at the

beginning of the cycle time, the holding cost for inventory,
quality related costs, and a tolerance cost should also be
included.
CASE ANALYSIS
In this model it is assumed that the product quality value is a random
variable following a normal distribution with the process mean, U, and
the process variance.

However, with the possibility of process deterioration being included in

the production process, the process mean U turns out to be time-
dependent and is expressed as a function of time s

a0 is the initial establishment, G is +1 or -1, and depending on the

direction of process deterioration, and W is the process deterioration
rate.

This model takes into account the costs pertaining to setup, inventory
holding, and quality loss, as well as the related costs for process mean,
process tolerance, and production order quantity under a deterioration
process.
CONTD...
Case 1: Backorder is not allowed for conforming product
The objective is to find the optimal values for decision variables
a0*, t*, and Q* which minimise TC1. By taking the derivatives of
TC1 and setting them equal to zero, the resulting expressions of
a0*, t*, and Q* can be obtained.

Case 2: Backorder is allowed for conforming product

It is apparent that the average inventory holding cost A I and the
average backordering cost AB can be expressed in the following .
The average inventory cost (with backorder)

Case 3: Backorder is allowed for nonconforming product

This case does not assume a conforming product. Rather, a
nonconforming product is assumed. Because of this relaxation of
assumptions, the failure cost needs to be considered and a
revision in terms of quality loss needs to be made
FINDINGS AND LEARNINGS

By observing the optimal values equations mentioned in the journal, we

can conclude:

The decision variables, a0 and t, which are process design related, are in a
functional relationship to the production and inventory related decision variable,
Q and T1, and also to related conditions such as r, P and D. Additionally, these
decision variables are influenced by the coefficient of quality loss function, K.
The decision variables, Q and T 1, which are production and inventory related, are
in a functional relationship to the process design related decision variables, a 0
and t, and to production and inventory related conditions such as r, P and D. Of
course, the decision variable, Q, is also affected by the quality related costs, K
value.
Clearly, based on the evidence of relationship and dependence among these
variables, the production-inventory management approach and the process-
quality design approach must work together for optimisation of the global
system. For this reason, it is necessary to integrate these two approaches to
achieve product quality at an economical cost.
INDUSTRIAL APPLICATIONS
Automobile sector has seen one of the major customer expansions
globally.
But this industry is equally plagued by the deterioration losses in
the production and assembly lines both in house as well as by
suppliers.

Benefits of applying in automobile industry:

Retailers are more likely to stock the product.

Customers return to make repeat purchases and recommend the
product or service to others.
Perceptions of quality allow for more premium pricing.
Fewer returns and replacements lead to reduced costs.
LIMITATIONS
Instead of taking quality cost in aggregation, we should divide it
into the following components to decipher the impact of each
variable and how each can be addressed separately:
Rework Cost
Scrap Cost/Rejection Cost
Sales Return Cost
Take into the space constraint of the industry. {E.g., ship building
industry would not be able to accommodate quality related
mounted inventories due to the lack of space available to them,
both during production and assembly)
Only considering the case of a single product in this study. This
study can be extrapolated to include varied product mix based
production such as FMCG or automobiles etc.
Here the production rate has been taken as a constant which
may not be the case due to the variations that we observe in the
actual production process.
THANK YOU