Optimal Demand Rate, Lot Sizing, and Process Reliability Improvement Decisions

Abstract

Because product quality is not always perfect in practice, process reliability improvement is an important managerial concern. This study considers this reliability/quality issue in the context of linking production (lot sizing and inventory) and marketing (pricing) decisions. We address some modeling issues of a related previous study. We develop a profit-maximization model, which we investigate under two different decision-making approaches to linking production and marketing (sequential and joint decisions). Calculus and geometric programming are used to solve the model, to compare the decisions from the two approaches analytically, and to develop a practical heuristic approach. The comparative results show that decision patterns can be the opposite of the optimal decisions for the perfect-quality case reported in the literature.

Additional information

Notes on contributors

Won J. Lee

Won J. Lee is Associate Professor of Management at the University of InChon, Korea. Dr Lee obtained a B.B.A. from Sungkyunkwan University, an M.B.A. from the University of Michigan, and a Ph.D. from Indiana University. His current research interests are in production/marketing integration/coordination, manufacturing/service interface, manufacturing flexibility, and service management.

Daesoo Kim

DaeSoo Kim is Assistant Professor of Operations Management in the College of Business Administration at Marquette University. He received a B.A. from Seoul National University, an M.B.A. from Bowling Green State University, and a Ph.D. in Operations Management from Indiana University. His current research interests center on supply chain coordination, business strategy-performance assessment, integrated or coordinated production and marketing decisions, cycle scheduling, flexibility and technology management, and service management.

A. Victor Cabot

Victor Cabot was Professor in the Decision and Information Systems department in the School of Business at Indiana University. He obtained a BSIE from the University of Miami and an MSIE and Ph.D. from Northwestern University. Professor Cabot had held visiting positions at the University of Grenoble and the Naval Postgraduate School. To the sorrow of many, our good friend, Dr Cabot, died in the fall of 1994.