OPTIMIZING IMPERFECT INVENTORY PROBLEM USING THE ECONOMIC PRODUCTION QUANTITY MODEL

Abstract

In production inventory, the goods produced are not always perfect. To ensure that customers get the perfect goods, an inspection process will be carried out before the goods are sent to customers. However, the inspection process is also not perfect. There are two types of inspection errors, i.e., Type-I and Type-II inspection error. In this study, the problem of imperfect inventory will be formulated using the Economic Production Quantity (EPQ) model. This study also considered rework and salvage for inspected goods and returned goods. The purpose of this model is to determine the production size and the length of the inventory cycle that maximizes the expected total profit. In addition, a sensitivity analysis will be carried out to provide the effects of parameter proportion changes optimum expected total profit. The results of the study found that to maximize the expected total profit, the parameter proportions must be decreased. Based on the results of model implementation, the optimum number of production units is 5,755 units, the optimum cycle length is 23 days, and the maximum expected total profit is IDR 1,672,513,135.44.