Random Yield, Rework and Scrap in a Multistage Batch Manufacturing Environment

This study is motivated by a make-to-order marketing environment where an order is met from a single production lot size. The objective of the study is to endogenize rework and scrap decisions in a multistage production process. A Markov decision process model is developed and solved using dynamic programming techniques. The model assumes that demand is given, and material, processing and rework costs are linear in the production lot size. Modeling random yield at each stage of the production process is of key interest. The solution to the problem is characterized and the sensitivity of the solution to the parameters of the model is examined.