Lot Sizing Based on Tardiness and Variable Production Cost with Random Yield

Abstract

This paper develops a model for determining the optimal lot size in a production system with variable yields and known demand, when there is a tardiness cost for not meeting the customer specified due date. As opposed to traditional approaches, the production rate is treated as a decision variable. The expected total profit function is derived and solution procedure is developed. The solution procedure is illustrated through a numerical example with uniform random yield.