240 Int. J. Technology Management, Vol. 48, No. 2, 2009 Copyright © 2009 Inderscience Enterprises Ltd. Production and payment policies for an imperfect manufacturing system with machine maintenance and credit policies Yu-Chung Tsao Department of Business Management, Tatung University, Taipei 104, Taiwan E-mail: yctsao@ttu.edu.tw Abstract: This paper considers an imperfect manufacturing system with machine maintenance and credit policies. The manufacturer adopts the machine maintenance when the system is in the out-of-control state. The supplier not only offers a credit period to settle the payment but also offers a cash discount to encourage the customer to pay the amount earlier. The interest earned is calculated based on retail price instead of purchase cost in most previous researches. The interest paid is not necessarily higher than the interest earned. The objective is to determine the retailer’s production run time and payment time that minimise the expected total annual cost. The model can be used as a cost-saving mechanism for an engineer-to-order production system. From numerical experiments, we discuss how the machine maintenance cost, the defective cost and the percentages of defective products affect the manufacturer. Keywords: imperfect manufacturing system; machine maintenance; technology management; credit period; cash discount. Reference to this paper should be made as follows: Tsao, Y-C. (2009) ‘Production and payment policies for an imperfect manufacturing system with machine maintenance and credit policies’, Int. J. Technology Management, Vol. 48, No. 2, pp.240–257. Biographical notes: Yu-Chung Tsao is an Assistant Professor in the Department of Business Management at Tatung University in Taiwan. He has been a Research Associate doing research in the School of Industrial and Systems Engineering at Georgia Institute of Technology. His research interests are in the areas of decision analysis, technology and operations management, supply chain and logistics management. 1 Introduction The traditional inventory model tacitly assumes that the payment must be made to the supplier for the items immediately after the retailer receives the products. However, such an assumption is not quite practical in the real world. In practice, the supplier may often provide forward financing to the retailer. This means that the supplier allows the retailer a credit period for settling the amount owed and does not charge any interest on the