Effects of service-level constraint and failure-in-repair on an economic manufacturing quantity model

This paper studies the effects of service-level constraint and failure-in-repair on an economic manufacturing quantity (EMQ) model with random defective rate. It starts with the proof that the long-run average cost of an EMQ model with backlogging permitted is less than or equal to that of the same model without backlogging. The relationship between the ‘imputed backorder cost’ and maximal permitted shortage level is dependent for decision making on whether or not the required service level is achievable. An equation that calculates the intangible backorder cost is proposed for dealing with situations when the required service level is not attainable. Finally, by utilizing this intangible backorder cost in the proposed mathematical analysis, an optimal lot-size policy that minimizes expected overall costs as well as satisfies the service-level constraint can be derived. A numerical example with a discussion that demonstrates the effects of service-level constraint and failure-in-repair on the EMQ model is provided.