A simple approximation for a multistage capacitated production-inventory system

✍ Scribed by Paul Glasserman; Sridhar Tayur

• Publisher: John Wiley and Sons
• Year: 1996
• Tongue: English
• Weight: 901 KB
• Volume: 43
• Category: Article
• ISSN: 0894-069X
• DOI: 10.1002/(sici)1520-6750(199602)43:1<41::aid-nav3>3.0.co;2-n

✦ Synopsis

We develop a simple approximation for multistage production-inventory systems with limited production capacity and variable demands. Each production stage follows a base-stock policy for echelon inventory, constrained by production capacity and the availability of upstream inventory. Our objective is to find base-stock levels that approximately minimize holding and backorder costs. The key step in our procedure approximates the distribution of echelon inventory by a sum of exponentials; the parameters of the exponentials are chosen to match asymptotically exact expressions. The computational requirements of the method are minimal. In a test bed of 72 problems, each with five production stages, the average relative error for our approximate optimization procedure is 1.9%.