A profit-based lot-sized model for the N-job, M-machine job shop: incorporating quality, capacity, and cycle time
Existing economic order quantity models base their calculations upon operations management principles established in the early 1900's. These principles focused primarily upon the control and reduction of the firm's variable costs. Total Quality Management has shifted this focus from costs and local optimization to quality and systems optimization. The marketplace also has changed. It has expanded from being primarily domestic into a globally competitive marketplace. In this new business environment, quality, market share, and profits must be primary elements in all of the firm's operating policies.
Recent operations management theories, such as Goldratt's (1980) Theory of Constraints, not only address these concerns but redefine how operations management should think about the production system. This research proposal evaluates the classical economic order quantity model and proposes a new model that addresses the lot sizing decision for shop floor operations. A profit maximizing (rather than a cost minimizing) perspective is taken. In this research, a theorized model is derived that considers cycle time and quality issues in addition to the traditional cost issues of production, holding and setup. To validate this model, empirical data and a simulation model are developed to parameterize and collaborate the findings of the theorized model.