This paper presents a model which treats the manufacturing cycle time as a
function of the lot size in a multi-stage production system. Using this functional
relationship to determine the magnitude of the work-in-process inventory, a model
is developed to calculate the economic production quantity (EPQ). The model
assumes that a uniform lot size is manufactured through several operations, with
only one set-up at each stage, and that transportation of sub-batches allows an
overlap between operations to reduce the manufacturing cycle time. Constant fixed
costs per lot, linear inventory holding costs and a constant and continuous demand
of finished products are assumed over an infinite horizon. The lot size is considered
"economic" when the sum of the fixed costs per lot and the inventory holding costs
of both the work-in-process and finished product inventories is minimized. The
model is a valid alternative to the conventional production lot size (ELQ) model
which only accounts for the finished product inventory. A cost sensitivity analysis
reveals the large potential savings from using the suggested EPQ model instead of
the conventional ELQ model in multi-stage production systems.