The Effect of Inflation and Time Value of Money on Lot Sizing By Considering of Rework in an Inventory Control Model

One of the assumptions in Econoic Production Quantity is that there is no imperfect production. Also the effect of inflation and time value of money is not considered with this model. But the studies show that the consideration of imperfect products in lot sizing or inflation and time value of money is varying the optimal lot size, therefore consideration of these two factors in lot sizing is essential. This paper studies the effect of inflation and time value of money on the EPQ model with rework. Since the total cost relation involves a complicated exponential function, evaluating the optimal point is not a trivial task. The effect of inflation and time value of money was investigated under given sets of values of inflation and discount rates. Computational results indicate that this effect on the model is very important.