A production order quantity model with stochastic demand for a chocolate milk manufacturer

A production planning model with stochastic demand, constant defective rate and capacity constraint is developed to analyse the production problem of a chocolate milk manufacturer. The model is proven to possess an optimal solution under the given conditions. An optimal production plan is established for the firm, which is shown to be superior to the present production plan. The sensitivity analysis performed on the optimal solution provides useful insights on the inventory control and capacity requirement decisions of the firm.