To form a smart production system, the effect of energy and machines’ failure rate plays an important role. The main issue is to make a smart production system for complex products that the system may produce several defective items during a long-run production process with an unusual amount of energy consumption. The aim of the model is to obtain the optimum amount of smart lot, the production rate, and the failure rate under the effect of energy. This study contains a multi-item economic imperfect production lot size energy model considering a failure rate as a system design variable under a budget and a space constraint. The model assumes an inspection cost to ensure product’s quality under perfect energy consumption. Failure rate and smart production rate dependent development cost under energy consumption are considered, i.e., lower values of failure rate give higher values of development cost and vice versa under the effect of proper utilization of energy. The manufacturing system moves from in-control state to out-of-control state at a random time. The theory of nonlinear optimization (Kuhn–Tucker method) is employed to solve the model. There is a lemma to obtain the global optimal solution for the model. Two numerical examples, graphical representations, and sensitivity analysis of key parameters are given to illustrate the model.
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