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OPTIMAL CONTROL OF A MAKE-TO-STOCK SYSTEM WITH ADJUSTABLE SERVICE RATE

Published online by Cambridge University Press:  19 September 2006

Maria E. Mayorga ,
Hyun-Soo Ahn  and
J. George Shanthikumar
Maria E. Mayorga
Affiliation:
Department of Industrial Engineering and Operations Research, University of California at Berkeley, Berkeley, CA 94720
Hyun-Soo Ahn
Affiliation:
Ross School of Business, University of Michigan, Ann Arbor, MI 48109, E-mail: hsahn@umich.edu
J. George Shanthikumar
Affiliation:
Department of Industrial Engineering and Operations Research, University of California at Berkeley, Berkeley, CA 94720
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Abstract

We consider a multiclass make-to-stock system served by a single server with adjustable capacity (service rate). At any point in time, the decision-maker must determine the capacity level, make a production decision (i.e., whether to produce an item to stock or to satisfy a backorder), and make a rationing decision (i.e., whether to satisfy a new order from stock or place it on backorder). In this article we characterize the structure of optimal capacity adjustment, production, and stock rationing policy for both finite- and infinite-horizon problems. We show that an optimal policy is monotone in current inventory and backorder levels, and we characterize its properties. In a numerical study we compare the optimal policy with heuristic policies and show that the savings from using an optimal policy can be significant.

Type
Research Article
Information
Probability in the Engineering and Informational Sciences , Volume 20 , Issue 4 , October 2006 , pp. 609 - 634
Copyright
© 2006 Cambridge University Press

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