Article ID: | iaor20084342 |
Country: | Netherlands |
Volume: | 176 |
Issue: | 1 |
Start Page Number: | 240 |
End Page Number: | 251 |
Publication Date: | Jan 2007 |
Journal: | European Journal of Operational Research |
Authors: | Leung Kit-Nam Francis |
Keywords: | programming: geometric |
The classical economic production quantity (EPQ) model assumes that items are produced by a perfectly reliable production process with a fixed set-up cost. While the reliability of the production process cannot be perfected cost-free, the set-up cost can be reduced by investment in flexibility improvement. In this paper, we propose an EPQ model with a flexible and imperfect production process. We formulate this inventory decision problem using geometric programming (GP), establish more general results using the arithmetic–geometric mean inequality, and solve the problem to obtain a closed-form optimal solution. Following the theoretical treatment, we provide a numerical example to demonstrate that GP has potential as a valuable analytical tool for studying a certain class of inventory control problems. Finally we discuss some aspects of sensitivity analysis of the optimal solution based on the GP approach.