An analysis of flexibility and quality improvement in a quality-adjusted EOQ model with finite-range stochastic lead-time

Traditional Economic Order Quantity (EOQ) model operates under a series of highly restrictive assumptions, including, but not limited to, the assumptions of deterministic lead-time, perfect quality, and constant setup cost. Many variants of the traditional EOQ model have been developed as a result of relaxing one or more of these assumptions. These variants include a quality-adjusted EOQ model with finite-range stochastic lead-time which relaxed the deterministic lead-time and perfect quality assumptions. Utilizing the basic framework of the quality-adjusted model, the authors also considered the option of investment to improve the quality and obtained closed form relationships for the quality-adjusted and quality improvement models. This paper extends the previous work by investigating two additional models; one aimed at improving flexibility, through setup reduction, and the second considering the strategy of simultaneous investment in flexibility and quality improvement. Analytical and numerical results are presented for both models. These results indicate that significant savings over the quality-adjusted EOQ model with finite-range stochastic lead-time are realized for both the flexibility improvement and simultaneous models.

► This paper extends the previous work by investigating two models.
► One aimed at improving flexibility, through setup reduction.
► Second, the paper targets the strategy of simultaneous investment in flexibility and quality improvement.