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This paper addresses the problem of determining the optimal batch sizes for production and recovery in an EOQ (economic order/production quantity) repair and waste disposal model context. This paper assumes that a first shop is manufacturing new products as well as repairing products used by a second shop. The used products can either be stored in the second shop and then be brought back to the first shop in an approach used to reduce inventory costs, or be disposed outside the system. The works available in the literature assumed a general time interval and ignored the very first time interval where no repair runs are performed. This assumption resulted in an over estimation of the average inventory level and subsequently the holding cost. These works also have not accounted for switching costs when alternating between production and recovery runs, which are common when switching among products or jobs in a manufacturing facility. This paper addresses these two limitations. Mathematical models are developed with numerical examples presented and results discussed. Keywords: EOQ model; Production/recovery; Reuse; Waste disposal; Switching cost

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.cie.2007.06.037 Byline: Ahmed M.A. El Saadany, Mohamad Y. Jaber Keywords: Quality and inventory; Process improvement; Supply chain coordination Abstract: The classical inventory model, known as the lot size problem (LSP), assumes items produced and stocked to be of perfect quality. In reality, production processes are not defect free. Such imperfect processes generate defects that are reworked, and in some cases scrapped. The move by practitioners towards smaller lot sizes; e.g., just-in-time (JIT), as a mean of improving process and product quality prompted researchers to modify the LSP to represent reality more faithfully. The studies conducted by these researchers confirmed the observed benefits of smaller lot sizes. The inventory models developed in these studies assume that defects increase as the lot size increases, and that adjusting the process within a production cycle is not possible. Contrary to this assumption, in a JIT environment workers are authorized to stop production if a quality or production problem arises. This practice encouraged Khouja [Khouja, M. (2005). The use of minor setups within production cycles to improve product quality and yield. International Transactions in Operations Research, 12(4), 403-416] to reformulate some inventory models which take into account the negative relationship between lot size and quality and the possibility of performing minor setups. This requires stopping the process during a production cycle. This paper investigates the work of Khouja in a centralized decision model where players in a two-level (manufacturer-retailer) supply chain coordinate their orders to minimize their local costs and that of the chain. Mathematical models are developed with numerical results discussed. Author Affiliation: Department of Mechanical and Industrial Engineering, Ryerson University, Toronto, ON, Canada M5B 2K3 Article History: Received 23 August 2006; Revised 20 June 2007; Accepted 20 June 2007