Optimizing the quality level of raw materials based on material flow cost accounting in a production system with rework

Abstract The concept of Material Flow Cost Accounting (MFCA) was developed by a German textile company in late 1980s through their projects for environmental management. The major objectives of MFCA are to increase transparency of material flow and energy usage along with their environmental and financial impacts. MFCA traces a variety of measures from material productivity metrics to crucial environmental indexes. Most of the existing researches on MFCA focus on conceptual models. A major research gap is the lack of mathematical optimization models which use the MFCA logic to support managerial decisions. This is the first known study in which a comprehensive mathematical optimization model has been developed based on MFCA cost logic, i.e., positive and negative costs. The model is named MFCABOM (MFCA-Based Optimization Model) in this paper. In addition, we have incorporated the quality cost of raw materials into the MFCABOM. The MFCABOM determines the optimal quality level of raw materials in a production system with rework. A numerical example has been solved and discussed to assess the performance and validity of the MFCABOM. The results show that the MFCABOM can strongly support production managers in selecting the optimal quality level of raw materials based on MFCA cost logic.