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An Integrated Optimization Model for Inventory and Quality Control Problems

Article in Optimization and Engineering · September 2004

DOI: 10.1023/B:OPTE.0000038891.11414.04

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 Optimization and Engineering, 5, 361–377, 2004


c 2004 Kluwer Academic Publishers. Manufactured in The Netherlands

An Integrated Optimization Model for Inventory

and Quality Control Problems
ABDUR RAHIM∗
Faculty of Administration, University of New Brunswick, P.O. Box 4400, Fredericton, N.B. E3B 5A3, Canada
email: Rahim@unb.ca

HIROSHI OHTA
Department of Industrial Engineering, College of Engineering, Osaka Prefecture University, Sakai,
Osaka 599-8531, Japan

Received November 28, 2000; Revised November 9, 2003

Abstract. In this paper, we develop an integrated economic model for inventory and quality control problems,
extending the work of Rahim ( IIE Transactions 1994; 26(6): 2–11) and Rahim and Ben-Daya (IJPR 1998; 36(1):
277–289). The production process is subject to an assignable cause which shifts the process from an in-control
state to an out-of-control state. We consider the shifts in both the process mean and the process variance. When
a signal for an assignable cause is triggered, a search is initiated and is terminated upon finding the cause within
a pre-specified target time. The process is then brought back to an in-control state by repair. However, if the
assignable cause is not discovered within the pre-specified time, production is allowed to continue until the next
sampling or warning, whichever occurs first. In this case, either the alarm is considered to be false with a probability
of Type I error, or the assignable cause has not been eliminated with a probability of Type II error. In the latter case,
the process produces products in an out-of-control state until the next sampling or warning, whichever occurs first.
However, this state does not indicate any severe damage to the system. Joint X̄ and R charts are used for monitoring
both process mean and variance. Under these conditions, a generalized economic model for the joint determination
of production quantity, an inspection schedule, and the design of the X̄ and R control charts are developed. A
direct search optimization method is used to determine the optimal decision variables of the economic model.

Keywords: production processes. economic production quantity, inspection schedule, control chart design,
integrated model, direct search optimization method

1. Introduction

Generally, production quality is not always perfect. It is usually depend on the operating
state of a production process which may shift from an in-control state to an out-of-control
state due to occurrence of some assignable cause(s). Traditionally, X̄ and/or R control charts
have been used to monitor the stability of a production process. An X̄ -chart is used to control
process mean and an R chart to control process variance. It is possible both the process
mean and process variance to vary simultaneously during a production cycle. For example,
in a typical industrial situation, vibration and/or pressure may result in accumulation inside

∗ Corresponding author.
362 RAHIM AND OHTA

a spray nozzle that might cause build-up of pressure, resulting in a positive shift in both
the process mean and variance (for example, see Rahim and Banerjee, 1988). Joint X̄ and
R charts are used to control both process mean and process variance simultaneously. The
relevant literature has increased considerably since Duncan’s (1956) pioneering work on
the economic design of process control charts. Earlier work in this area is summarized by
Montgomery (1980) and Vance (1985). Recently, Svoboda (1991) and Ho and Case (1994)
have provided comprehensive reviews of the economic design of process control charts.
In the economic design of control chart, the objective is to determine the optimal design
parameter values of the sample size n, the sampling (inspection) interval h, and the control
limit coefficient k for the chart so as to minimize the expected cost per unit time of operation.
In developing models for economic design of control charts, it has been always assumed
that the in-control period follows an exponential failure probability distribution model (a
Markovian shock model) having a constant failure rate. As such, in the Duncan’s approach,
the length of the sampling intervals is kept constant and uniform throughout the production
process. However, owing to aging, the process failure distribution may be more appropriately
described by an increasing failure rate distribution (a non-Markovian shock model). Using
a renewal theory approach, Banerjee and Rahim (1987) derived economic models for some
non-Markovian processes. However, the issue of a non-uniform sampling scheme had not
been addressed until Banerjee and Rahim (1988) demonstrated that increasing the frequency
of sampling as the system ages yields a lower operational cost per unit time for a Weibull
distributed shock model.
The problem of determining the economic production quantity (EPQ) in production pro-
cesses has also been well studied in the literature (see, for example, Silver et al., 1985). In
EPQ lot-size model, the problem is to find how much to produce and how frequently to
produce (the duration of production run) so that the total cost is minimum. The total cost
consists of generally, the set-up cost and the inventory holding cost. In the development of
EPQ models, controlling the quality of the product has not been a general consideration.
Rather, product quality has been assumed to be perfect. As a result, the effects of a deteri-
orating process on the EPQ have been ignored. In many industrial situations, however, the
quality and the quantity of the product(s) are equally important. Rosenblatt and Lee (1986)
have studied the effects of an imperfect production process on the optimal production run,
while the problem of joint determination of the EPQ and inspection schedules for an im-
perfect production process has been studied by Lee and Rosenblatt (1987). In both of their
studies, the state of the production process is monitored by an inspection scheme. The EPQ
and inspection schedule are dependent on the trade-off among set-up cost, holding cost,
inspection cost, and process deterioration. However, it is assumed that the process failure
mechanism follows a Markovian shock model. This assumption may not be always appli-
cable. In the determination of EPQ, a non-Markovian shock model has not been adequately
addressed. Furthermore, the effect of EPQ on the economic design of control charts has not
been well investigated.
Traditionally, quality control and inventory control have been viewed as two separate
problems. However, Rahim (1994) presented a model for integrating the EPQ, inspection
schedule, and control chart design of an imperfect production process. The following as-
sumptions are made. The process is subject to the occurrence of a non-Markovian shock
AN INTEGRATED OPTIMIZATION MODEL 363

having an increasing failure rate. The output product quality is monitored under the surveil-
lance of an X̄ -chart. The objective is to determine the optimal control chart design param-
eters and EPQ so as to minimize the expected total cost (the quality control cost and the
inventory control cost) per unit time. However, for the ease of mathematical simplicity, the
time for searching for an assignable cause when the alarm is false was assumed to be very
negligible. More recently, Rahim and Ben-Daya (1998) have introduced a more realistic
assumption concerning the stoppage of equipment during the in-control phase of a false
alarm. Nevertheless, following the traditional approach, an X̄ -chart is used to monitor the
process where any changes have been observed in the process mean under the assumption
that the process variance remains constant throughout the production cycle. In practice,
however, it is possible that both the process mean and the process variance may change
simultaneously during a production cycle. In that case, an R control chart is often used to
monitor the process variance. Considerable attention has also been devoted to the study
of the joint economic design of X̄ and R control charts in recent years. This growing in-
terest is due to the greater power of joint X̄ and R charts for catching the shifts in the
process parameters compared to that of the X̄ or R chart used separately (Jones and Case,
1981; Rahim, 1989; Saniga, 1989; Costa, 1993, 1998; Rahim and Costa, 2000; Ohta et al.,
2002).
In this paper, we developed a generalized economic model for the joint determination of
EPQ and X̄ and R control chart design. The paper is organized as follows: the next section
provides the assumptions and model development, Section 3 outlines the optimization algo-
rithm for determining economic design parameters, and Section 4 provides the application
and illustrative example. The final section offers some concluding remarks.

2. Assumptions and model development

In this section, we develop a generalized integrated cost model for the joint determination
of EPQ, inspection interval schedules, and the design parameters of the X̄ and R charts.
The integrated model is based on the following main assumptions.

1. The measurable quality characteristic is assumed to be normally distributed with mean

µ0 and standard deviation σ0 while the process is in control.
2. The measurable quality characteristic is assumed to be normally distributed with mean
µ1 (=µ0 + δσ0 ) and standard deviation σ1 (=σ0 /κ) while the process is in an out-of-
control state. In this case, shifts in both the mean and the standard deviation of the product
quality characteristic are occurring simultaneously due to a single assignable cause.
3. If any inspection shows that the state of the process is out of control, production
ceases during γ (unit time for searching an assignable cause). If an assignable cause
is found during γ , the process is brought back to an in-control state by repair. If an
assignable cause is not found during γ , production is resumed. Note that in this case, the
alarm is either false or the assignable cause cannot be eliminated during the searching
time.
4. A production cycle begins when a new component is installed and ends when repair is
needed or after a specified number m of sampling intervals has passed, whichever occurs
364 RAHIM AND OHTA

Figure 1. X̄ -chart.

first. The process is brought back to an in-control state by repair. Thus, a renewal occurs
at the end of each cycle.

Design of X̄ -chart

A typical X̄ -chart is depicted in figure 1. The control limit of the X̄ -chart is set at µ0 ± k1
times the standard deviation of the sample means, where k1 is known as the control limit
coefficient, such that
√
UCL X̄ = µ0 + k1 σ0 / n (1)

and
√
LCL X̄ = µ0 − k1 σ0 / n (2)

A fixed sample of size n is taken from the output every h hours. Whenever the sample
mean fall outside the specification limits of the product, the result signals that the process
has shifted to an out-of-control state. Hence, appropriate action such as identifying the
assignable cause and restorative work may be undertaken to bring the process back to an in-
control state. Otherwise, the out-of-control state will continue until the end of the production
run. The goal is to determine the optimal values of the design parameters (decision variables)
of the control charts so as to minimize the expected total cost per unit time.
Design parameters are the sample size (n) drawn in each sampling interval (h), and the
upper and lower control limits coefficient (k). Inspection is necessary to determine the
control state of the process.
A complete solution of the problem would require detail information about the statistical
characteristics of the control charts and the knowledge of the costs of sampling, costs of
investigating and possibly correcting the process in response to out-of-control signals, and
the costs associated with producing a product that does not meet the specifications.
There are two situations which may result in making wrong decisions in the inspection
procedure. The first situation is caused by a Type I error, meaning that the process is
in control but an out-of-control signal is reported. The second situation occurs when the
AN INTEGRATED OPTIMIZATION MODEL 365

Table 1. Performances of an imperfect and perfect inspections.

State of the process

Indication of
the state at inspection Process is in-control Process is out-of-control

Process is out-of-control Type I error or false alarm Prob(a true alarm) = 1 − β X̄

Prob(Type I error) = α X̄
Process is in-control Prob(no false alarm) = 1 − α X̄ Type II error or no true alarm
Prob(Type II error) = β X̄

process is shifted to an out-of-control state; however, the chart fails to report the out-of-
control condition, defined as a Type II error. Traditionally, the symbol α X̄ is used to represent
the probability of a Type I error, β X̄ is used to represent the probability of a Type II error,
and the symbol PX̄ = 1 − β X̄ represents the probability of detecting a true alarm, i.e. the
probability of catching a shift. Table 1 shows these relationships. The expressions for α X̄
and β X̄ are as follow:

α X̄ = 2(−k1 ) (3)

and
√ √
PX̄ = 1 − β X̄ = 1 − {(−δ n + k1 )κ} + {(−δ n − k1 )κ} (4)

where κ = σ0 /σ1 , and (·) is the cumulative distribution function of a standard normal
variable.

Design of R-chart

The basic range chart is shown in figure 2. Denoting the upper and lower control limits,
respectively, for the R chart as

UCL R = k2u σ0 (5)

Figure 2. R-chart.
366 RAHIM AND OHTA

and

LCL R = k2l σ0 (6)

where k2u and k2l are the upper and lower control limits coefficients for the R-chart, respec-
tively.
We obtain expressions for the Type I error and the power of the R-chart as follows:

α R = 1 − Fn (k2u ) + Fn (k2l ) (7)

-
and

PR = 1 − Fn (k2u σ0 /σ1 ) + Fn (k2l σ0 /σ1 ) (8)

where Fn (·) is the cumulative distribution function for the standardized range w = R/σ0 ,
is given by

∞
Fn (w) = {(w/2) − (−w/2)}n + 2n ϕ(u){(u) − (u − w)}n−1 du. (9)
w/2

Joint probability of Type I and power for the combined charts

In interpreting patterns on X̄ and R charts, one should consider two charts jointly
(Montgomery, 1991)). If the underlying distribution is normal, then the random variables
X̄ and R computed from the same sample are statistically independent. The joint Type I
error, α, and power, P, respectively, for the joint X̄ and R control charts can be obtained as
follows:

α = α X̄ + α R − α X̄ · α R (10)

and

P = PX̄ + PR − PX̄ · PR (11)

Weibull shock and inspection intervals

In Duncan’s approach, a fixed length of sampling interval and a constant failure rate over
each interval were assumed. However, when the process fails at an increasing rate (as in
a Weibull distribution), the frequency of sampling should increase according to the age
of the system. Duncan’s model was extended by Banerjee and Rahim (1988), assuming a
process with a Weibull distribution time shift and an increasing hazard rate. They found
AN INTEGRATED OPTIMIZATION MODEL 367

that increasing the sampling frequency according to the age of the system results in a lower
operational cost per hour.
The density function for the in-control period of the Weibull distribution is expressed as

f (t) = λvt v−1 exp(−λt v ), t > 0, v≥1 (12)

where λ > 0 is the scale parameter and v is the shape parameter (when v = 1, the distribution
becomes exponential). The cumulative distribution function of time to failure is given by

F(t) = 1 − exp(−λt v ) (13)

Denoting F̄(t) = 1 − F(t), the hazard rate is expressed as

f (t)
r (t) = = λvt v−1 (14)
F̄(t)

Furthermore, uniform sampling intervals for Markovian shock models provide a con-
stant integrated hazard rate over each interval. Intuitively, this principle may be applied to
non-Markovian shock models by choosing the length of sampling intervals such that the
integrated hazard rate over an interval is constant. Thus, we have

ω j+1
ω1
r (t)dt = r (t) dt (15)
ωj 0

Using the above integrated hazard rate criterion, Banerjee and Rahim (1988) have pro-
posed that the lengths of the sampling intervals h j , j = 2, . . . , m are related to h 1 , where
the time that the process remains in the in-control state follows a Weibull distribution. Thus,

h j = [ j 1/v − ( j − 1)1/v ]h 1 , j = 2, . . . , m (16)

It is noted that h i satisfies the following requirements:

h1 ≥ h2 ≥ · · · ≥ hm
m
lim hj = ∞ (17)
m→∞
j=1
h j = h1 for all j when v = 1 (Markovian shock model).

Inspection scheme

The production process is inspected at time ω1 = h 1 , ω2 = h 1 + h 2 , . . . to determine its

state.
The model will assume that a production cycle ceases either with a true alarm or at ωm ,
whichever occurs first. In other words, if no true alarm is detected by the time ωm−1, then
368 RAHIM AND OHTA

Figure 3. A typical quality control cycle.

the production cycle will continue for an additional time h m , and the old component will
be replaced by a new one at time ωm . Therefore, there is no cost of sampling and charting
during the m-th sampling intervals. The time to sample and chart one item is negligible.
In addition, a production cycle begins when a new component is installed and ends after a
search that results in a repair or after a specified number m of sampling intervals, whichever
occurs first. Production ceases even during the in-control phase for a constant amount of
time γ whenever there is a false alarm. This assumption was not been considered in Rahim
(1994). If any inspection shows that the state of the process is out-of-control, production
ceases until the accumulated inventory is depleted to zero. If the process is found to be
in control, production continues until the predetermined level of inventory is accumulated.
The process is brought back to an in-control state by repair. Thus, a renewal occurs at the
end of each cycle. According to Rahim’s (1994) model, it is assumed that m is infinity.
For instance, a production cycle ceases when the true alarm is triggered. However, in the
present model, m could be a decision variable along with n, k and h j , j = 1, 2, . . . , m. The
graphical representation of a typical quality control cycle is shown in figure 3.

Determination of quality costs, D0 and D1

The expected cost per hour due to production of nonconforming items when the process
is in control, D0 , and the expected cost per hour due to the production of nonconforming
items when the process is out of control, D1 , are derived as follows:
The fraction defectives p0 when the process is in control and p1 when the process is out
of control are given by

∞
∞
p0 = ϕ(u) du = ϕ(u) du = 1.0 − (A) (18)
SU −µ0
σ0 A

and

∞
∞
p1 = ϕ(u) du = ϕ(u) du = 1.0 − (κ(A − δ)) (19)
SU −µ1
σ1 κ(A−δ)
AN INTEGRATED OPTIMIZATION MODEL 369

where

SU = µ0 + Aσ0 (A > 0)

is the upper specification limit of the product.

ϕ(·) and (·) are the probability density function and the cumulative distribution function
of a standard normal variable, respectively. Using Eqs. (18) and (19), we see that D0 and
D1 can be derived as follows:

D0 = Cd × r p × p0  (20)

and

D1 = Cd × r p × p1  (21)

where z stands for the maximum integer that is less than or equal to z, Cd is the unit cost
caused by producing a defective item, and r p is the production rate.
The probability of missing the assignable cause in the search time, e2 is given by
 
1.0 + δ
e2 = exp − γ (22)
κ

Equation (22) indicates that e2 decreases as the process mean and process variance increases
(i.e., δ increases and κ decreases), and the time for searching the assignable cause, γ ,
increases.

Derivation of the production run time and production stop time

We obtain the expected total length of production run in the inventory cycle, E(TU ), as the
sum of the expected operating time while the process is operating in control period and out
of control period (including the time period during which the occurrence of the assignable
cause has not been detected). The mathematical expression for E(TU ) is as follows:

m
E(TU ) = h j F̄(ω j−1 ) + {β + (1 − β)e2 }
j=1


m−1 
m
× F(ω j ) {β + (1 − β)e2 }i−( j+1) h i (23)
j=1 i= j+1

Furthermore, the expected total length of production stop for searching the assignable cause
in the inventory cycle due to the indication of a false alarm, E(TD ), can be obtained by the
following:

m−1
E(TD ) = γ α F̄(ω j ) (24)
j=1
370 RAHIM AND OHTA

Derivation of the quality control cost

Following Rahim (1994), the expected quality control cost per cycle, E(C), can be described
as the expected cost of operating while the process is initially in control and then out of
control, subsequently triggering a true alarm. In addition to the notation described earlier, let
Y be the set-up cost per false alarm, Wc be the cost per unit time for searching an assignable
cause, a is the fixed sampling cost, b is the variable sampling cost, and W is the repair
cost, and S(t) is the salvage value for the working equipment at time t. The E(C) can be
expressed as the expected cost of operating while process is in control with no alarm, the
expected cost of false alarms, the expected cost of operating while process is out of control
with no alarm, the repair cost, and the expected cost of sampling minus the salvage value
for the working equipment of age x. The mathematical expression for E(C) is as follows:

 

m−1 
m−1 
m−1
E(C) = D0 h j F̄(ω j−1 ) + (1 − α − β) F(ω j ) + α F̄(ω j−1 ) γ Wc
j=1 j=1 j=1
 

m−1 
m−1
+ {(1 − β)e2 − α} F(ω j ) + α F̄(ω j−1 ) Y
j=1 j=1

m
ωm
+ (D1 − D0 ) ω j F(ω j ) − (D1 − D0 ) x f (x)d x
j=1 0


m−1 
m
+ D1 {β + (1 − β)e2 } F(ω j ) {β + (1 − β)e2 }i−( j+1) h i
j=1 i= j+1
 

m−2 
m−2
+ (a + bn) 1 + F̄(ω j )+{β + (1 − β)e2 } F(ω j )Q j
j=1 j=1

m
− (1 − β)(1 − e2 ) S(ω j ) F(ω j ) + W
j=1

where

j
m−1−
Q j = (1 − β) iβ i−1 + (m − 1 − j)β m−1− j (25)
i=1

Integrated cost model

The expected total cost of the integrated model consists of process the set-up cost, inventory
holding cost, and quality control cost. The integrated production, inventory, and quality
control cycle is depicted in figure 3. Denoting r p is the production rate, rd is the demand
rate, C0 is the set-up cost per setup, and C h is the inventory holding cost per unit per period.
AN INTEGRATED OPTIMIZATION MODEL 371

Figure 4. Integrated quality and inventory control cycle.

The expected total cost per unit time, ETC, is obtained as follows:
(expected set − up cost + expected inventory holding cost + expected quality control cost)
ETC =
(expected length of production and quality control cycle)

Mathematically, it is shown as follows:

rd 1 rd
ET C = C0 + E(TU ){r p E(TU ) − rd E(TP )}C h + E(C) E(TU ) (26)
rp 2 rp

where the relation between the expected total length of the inventory cycle, E(T ), and the
expected total length of the production run in the inventory cycle, E(TU ) is as follows:
rp
E(T ) = E(TU )
rd

The problem of interest is to determine, simultaneously, the parameters m, n, k1 , k2u , k2l ,

h 1 and γ which minimize the ETC. The graphical representation of the integrated quality
and inventory control cycle is shown in figure 4.

3. Optimization algorithm for determining design parameters

The pattern search technique of Hooke and Jeeves (1961) is employed to minimize the
expected per hour cost associated with the objective function ETC. Pattern search is a
direct search technique for minimizing function f , of a vector-valued variable x. For the
present case, f = ETC and x = (n, k1 , k2u , k2l , h 1 , γ ) is a six-dimensional vector with the
components of x equal to the design parameters.
The Hooke-Jeeves algorithm consists of two distinct phases, the first is an exploratory
search phase that serves to establish a direction of improvement, and a second is a pattern
move that extracts the current solution vector to another point in the solution space. Figure 5
shows a flow chart of Hooke and Jeeves optimization technique.
372 RAHIM AND OHTA

Figure 5. Flow chart for Hooke and Jeeves search algorithm (Source: Basic Optimization Methods by Brian D.
Bunday, 1984).

The search starts with a local exploration in small steps around the starting point. If the
exploration is a success, i.e., if the expected cost reduces during local exploration, the step
size grows, if the exploration is a failure, the step size is reduced. If a change of direction
is necessary, the method starts all over again with a new pattern. The search is terminated
when the step size is reduced to a specified value, whichever occurs first. However, due
to the characteristics of the cost function ETC, some modifications to the method have to
be made in order to account for the inherent integrality constraints on the sample size n
and number of inspection interval m, and on the probabilities of Type I and Type II errors.
These modifications are as follow: m and n must be an integer value; the expressions for
P and α are non-negative. Further more, the optimal value of m ≥ 2 is determined by the
inequalities:

ETC(m − 1) ≥ E T C(m) ≤ ETC(m + 1)

4. Applications and illustrative examples

There are many industrial applications for the proposed model as one can imagine. For
example, consider the bottle filling process studied by Costa (1998), where the amount
of liquid in each bottle is the quality characteristic of interest. Occasionally, the liquid
AN INTEGRATED OPTIMIZATION MODEL 373

contains some impurities that partially clog the feeder line, thereby shifting the process
mean. To return the mean (µ) to the target, the feeder line must be cleaned. Since cleaning
the feeder line requires a shut down of the process, unnecessary cleaning must be avoided.
Historical data have shown that the process variance increases when the process mean
shifts. The R-chart has been used jointly with an X̄ -chart for monitoring the bottle contents.
Consider another example of a similar type (see Rahim and Banerjee, 1988), a container
filling process where the nozzle of the feeder line occasionally overflows or underflows due
to overheating/overpressure or vibration and shifts the process mean, process variance, or
both.
To illustrate the application of the developed model, an industrial example of Lee and
Rahim (2001) will be used to determine the economic production quantity, the design
parameters of an X̄ -control chart and the inspection policy under non-Markovian shock
models.
Let us assume that the occurrence time of any one of the above assignable causes follows a
Weibull failure distribution with scale parameter λ = 0.05 and the shape parameter ν = 2.0.
It is assumed that the average cost of finding an assignable cause, Wc is $400, whereas the
cost per unit time of searching for an assignable cause during a false alarm is estimated to
be Y = $5.0. The fixed cost of the sampling is assumed to be a = $2.0 and the variable
cost of sampling is b = $0.5. The salvage value of the equipment is time dependent, and it
is closely approximated by S(t) = 1100 exp(−t). The constant demand rate is rd = 1400
units per hour, and the constant production rate is r p = 1500 units per hour. A fixed
setup cost C0 = $20.0 and a unit inventory holding cost C h = $0.1 are assumed. Cost of
producing a defective item, Cd = $2.5 and cost of repair assignable cause W = $1100. The
manufacturer uses an X̄ control chart to control the process mean and an R chart to control
the process variance. The problem for the manufacturer is to find the optimal sample size,
inspection intervals, control limit coefficients for both charts, and the economic production
quantity which is measured in terms of number of bottles or containers filled per unit time.
Table 2 shows the several choices of magnitude of the shift parameter in the process
mean, δ, and magnitude of the shift parameter in standard deviation, κ = σ0 /σ1 . Assuming
the value of the magnitude of the shift in the process mean, δ = 0, κ = σ0 /σ1 = 1, one
can easily find the value of p0 = 0.0231 and D0 = $85.00. Assuming these values of
p0 and D0 , Table 2 is prepared for determining the pair values of p1 and D1 for several
combinations of κ and δ.

Table 2. Fraction defectives and quality cost per unit time.

δ→ 0.5 1.0 1.5

κ↓ p1 D1 p1 D1 p1 D1

0.9 0.0887 332.5 0.1841 690.0 0.3264 1222.5

0.8 0.1152 430.0 0.2119 792.5 0.3446 1290.0
0.7 0.1469 550.0 0.2420 907.5 0.3632 1360.0
0.6 0.1841 690.0 0.2743 1027.5 0.3821 1432.5
0.5 0.2267 850.0 0.3085 1155.0 0.4013 1502.5
374 RAHIM AND OHTA

Table 3. Optimal designs obtained using the direct search optimization method.

Example δ κ m n k1 k2u k2l h1 γ Q∗ ETC

1 0.5 0.9 57 38 1.67 6.60 2.32 3.25 0.20 10616 386.9

2 0.8 54 40 1.77 5.93 2.00 2.78 0.30 8533 421.5
3 0.7 44 30 2.07 5.31 2.47 2.02 0.32 7295 439.1
4 0.6 62 16 2.32 4.72 1.60 1.47 0.32 6650 441.3
5 0.5 60 9 2.42 4.30 0.18 1.21 0.30 6386 440.0

6 1.0 0.9 74 10 1.73 6.49 1.23 1.33 0.27 6679 436.8

7 0.8 77 11 1.74 5.84 1.34 1.31 0.32 6521 444.2
8 0.7 56 12 1.72 6.11 1.58 1.28 0.35 6401 450.8
9 0.6 62 11 2.13 4.95 0.90 1.19 0.32 6322 450.2
10 0.5 71 10 2.31 5.20 0.86 1.09 0.32 6220 447.5

11 1.5 0.9 78 7 2.36 6.27 0.78 0.96 0.36 6180 451.9

12 0.8 79 7 2.36 6.62 0.64 0.94 0.33 6158 452.0
13 0.7 88 8 2.42 5.77 0.66 0.95 0.32 6164 452.8
14 0.6 76 8 2.40 5.54 0.77 0.95 0.31 6121 451.7
15 0.5 70 8 2.49 5.67 0.86 0.97 0.30 6100 448.8

Table 3 provides the results of the optimal designs obtained by using the optimization
method stated in Section 3. For an illustrative purpose, let the magnitude of the shift param-
eter in the process mean, δ, equal 0.5 and the magnitude of the process standard deviation,
κ = σ0 /σ1 , be 0.9. The time-varying optimal design parameters, economic production
quantity, Q ∗ , and the expected total cost per hour, ETC, are shown in example 1 in Table 3
when δ = 0.5 yielding the following plan: the number of sampling intervals m = 57, the
sample size n = 38, the control limit coefficient for the control X̄ -chart k1 = 1.67, the upper
control coefficient for R-chart k2u = 6.60, the lower control limit coefficient for R-chart
k2l = 2.32, the first sampling interval h 1 = 3.25 hours, the search time for assignable cause
γ = 0.20 hours, and the economic production quantity Q ∗ = 10616 with an expected cost
of $386.90.
The effects of changes in δ and κ values can be seen from Table 3. These are illustrated
as follows:

(1) The relative sensitivity of the magnitude of the shift parameter for the process mean,
δ, can be seen by considering, for example, the results with δ = 0.5, δ = 1.0, and
δ = 1.5 for κ = 0.9, i.e. comparing the results of example 1 with example 6 and
11. The size of the shifts (δ) is a factor which influences the proportion of defective
output produced while the system is running out of control. Thus, when δ increases, the
economic production quantity, Q ∗ , as well as both the lower and upper control limits
for the R-chart, k2l and k2u decrease, and resulted in ETC increases, the sample size n
increases, number of inspection intervals m increases, the control limit coefficient of
the X̄ -chart, k1 increases, and the search time γ increases.
AN INTEGRATED OPTIMIZATION MODEL 375

(2) When only process variance increases, for example, compare the results of example 1
with example 2 with δ = 0.5. The sample size n decreases, the control limit coefficient
for X̄ -chart, k1 increases, upper and lower control limit coefficients for the R-chart, k2u
and k2l decrease and the sampling interval h 1 decreases, the search time γ increases,
the economic production quantity Q ∗ decreases, and the expected cost ETC increases.
(3) When both the process mean and the process variance increase, for example, compare
example 1 with example 7 and 13. The sample size n, the sampling interval h 1 , the
control limit coefficient for X̄ -chart, k1 , the lower coefficient limit for R-chart, k2l ,
and the economic production quantity, Q ∗ decrease, and the expected total cost, ETC
increases, upper control limit coefficient for the R-chart, k2u increases and search time
γ increases.

5. Concluding remarks

This paper extends the work of Rahim (1994) and Rahim and Ben-Daya (1998) and develops
a generalized economic model for the problem of inventory and quality control. This model
takes into account the simultaneous change in the process mean and the process variance;
it includes an R chart, in addition to an X̄ chart, thereby making it more realistic. To
accomplish this, the paper makes an assumption that there is a pre-specified time to find an
assignable cause when there is an out-of-control signal. If the source of the assignable cause
cannot be detected within a pre-specified time, the process is allowed to continue until the
next warning signal is triggered. This may lead to Type I or Type II errors depending on the
actual existence or non-existence of an error. The time for searching an assignable cause is
considered to be an additional decision variable. This assumption may invite some criticism
and deserves some explanation and/or justification. Some researchers might interpret it as
contradicting the modern view in quality management that quality is the number one priority
or as supporting the traditional concept of quantity over quality. In other words, time is
considered to be more important than quality; hence, time is not to be wasted in fixing
a problem. The implication of this assumption is that, in the long run, resources may be
wasted in producing inferior goods. Customers may end up receiving poor quality products
that should have been detected in the process. Loss of the customer’s goodwill may be
incurred, and the manufacturer will eventually lose competitiveness.
The following explains and justifies the above assumption. To keep the process in control,
the magnitude of the shift/drift must be maintained within a specified range. This can be
accomplished by resetting the tool or cleaning the nozzle of the feeder. But this resetting
operation may be costly and may involve loss of production. Some degree of deterioration
of the quality of the product may be tolerable at a cost. However, as the production cycle
increases, the cost of defective items will increase to the point where the cost of resetting
may be more economical. What is needed is an optimal rule for resetting. Duncan’s (1956)
and Chiu’s (1975) models for the economic design of control charts have been widely
studied in the literature. According to Duncan, the process remains in operation during the
search for the assignable cause. For Chiu, the process is shut down during the search for the
assignable cause. Our assumption to allow the process to continue if the assignable cause
has not been detected within the specified time adheres to the concepts of both Duncan
376 RAHIM AND OHTA

and Chiu. Furthermore, in some canning processes, the products are very hot when they
come off the production line, and the inspector has to wait until the product cools before
taking a sample. In many industrial situations, the quality and quantity of the products are
equally important to the producer. Nevertheless, it has been recognized that improvements
in production efficiency, quality, and cost can be realized through a careful selection of the
design parameters, and this has been accomplished by using an optimization method in the
current paper. From our numerical studies, we found that the optimal value of Type II error
lies, approximately, between 0.01 and 0.05. That is, the probability of catching the shift if
there is one, lies between 0.95 and 0.99. This indicates that if the assignable cause occurs
and is not detected immediately, it will be detected, on average, after one sampling interval.
The following problem may be worth investigating in future research. In our model we
stop the process at ωm or at failure (detection time), whichever occurs first. The inventory is
depleted to zero, before we start a new cycle. In many production situations, manufacturers
may not like to stop the process to reduce inventory to zero. Rather, they may prefer to
continue production of a predetermined quantity q, then stop the process to deplete the
inventory to zero. In this case, the following may arise:

(1) q items are produced before the first failure, then the process is allowed to bring the
inventory level to zero; or
(2) q items are produced by ωm , during which time there could be a number of failures
requiring that the process be repaired each time. Then, the process is allowed to bring
the inventory level to zero.

Each of these cases poses an interesting and important problem for future study.
An alternative approach is that it is possible to design only one chart which can monitor
both the mean and the variance at the same time. Chen et al. (2001) proposed an MaxEWMA
Chart that the user can monitor both the process mean and the process variability by looking
at one chart. Another important issue raised in this paper is that the paper has considered
only time-varying inspection intervals. It may be more challenging to extend the paper by
incorporating adaptive sampling and inspection schemes (for more details, see Tagaras,
1998).

Acknowledgments

The financial assistance of the Natural Sciences and Engineering Research Council (NSERC)
of Canada in support of this collaborative research is gratefully acknowledged. The con-
structive and helpful comments and suggestions of three referees on the previous version
of the manuscript resulted in a significant improvement in the readability and clarity of the
current version. Their efforts are greatly appreciated.

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