LOT-SIZING WITH RANDOMLY GRADED YIELDS

We consider a single inventory item that is graded into one of two qua lity levels after production. The proportion of grade one units produc ed in a lot is a random variable assumed to follow the lognormal distr ibution. Demands for grade 2 may be filled with grade I product, but n ot vice versa. Assuming that demands for the two grades are known and constant, we develop a continuous review model in which cycles are def ined as times when total inventory equals zero. Since grade 1 inventor y may be depicted before total stock and shortages are not permitted, cycles may consist of multiple set-ups. We shaw that the optimal order -to-point, S, has a form similar to the EOQ. Tables of the CDF of an a ppropriately defined unit normal multivariate distribution are incorpo rated into a spreadsheet to facilitate calculations for any parameter setting.