Production decision making considering dual material types and setup time uncertainty

In this study, we investigate the production decision making of a manufacturer, considering the sequential use of raw and recycled materials in a single production process, in which the production setup notably influences the product conformance. Compared with raw materials, recycled materials are less expensive but may not have a sufficiently stable quality, which may lead to a variable setup time. We consider the maximum allowed setup time for recycled materials to mitigate the risk of a prolonged setup time. By minimizing the expected cost per unit time, we determine the manufacturer's lot size for the raw materials in settings in which the maximum allowed setup time is exogenous and endogenous and the lot size of the recycled materials is exogenous. The results of the numerical analyses demonstrate that the maximum setup time and lot size of the recycled materials can serve as cost reduction drivers for the manufacturer. Furthermore, production with raw and recycled materials involves a lower cost than production with raw materials owing to the lower purchase cost and average setup time incurred when using recycled materials.