Decision-making on quality investment in a dynamic lot sizing production system

Abstract

This paper explores the economics of investing in process improvement and lot size control. We formulate a model on quality investment in a dynamic lot sizing production system. We suppose that the quality characteristic performs as a normal distributive function. The asymmetrical truncated loss function is used to evaluate the cost of poor quality and increase the generality of our model. A numerical example is provided to support the model. We find that the poor quality cost is bound and gradually approaches to its lower bound upon increasing the quality investment. We also find that the total cost is an increasing function with increasing lot size and there is a minimal total cost for a given lot size upon changing quality investment. Based on this research, the management can evaluate the effect of quality investment and change their production lot size to generate significant financial return in the production line.

Keywords:

• Asymmetrical truncated loss function
• Lot sizing
• Quality investment