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CAPACITY: ON THE OPTIMALITY OF ORDER BASE-STOCK POLICIES
BibTeX
@MISC{(corresponding_capacity:on,
author = {Jacob Wijngaard (corresponding and Fikri Karaesmen},
title = {CAPACITY: ON THE OPTIMALITY OF ORDER BASE-STOCK POLICIES},
year = {}
}
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Abstract
This paper considers the optimality of order aggregation in a single-item production-inventory problem with advance demand information and a restricted production capacity. The advance demand information is modeled by introducing a positive customer order lead time. The paper proves, when customer order lead times are less than a threshold value, it is allowed to aggregate the orders over time when establishing the optimal production decision. This implies the optimality of an order base-stock policy. It shows also that in case of linear inventory cost, the positive effect of advance demand information is equal to a cost reduction that is proportional to idle time and foreknowledge horizon. The results hold for the backlogging case as well as for the lost-sales case. Key words: Advance demand information, restricted production capacity, base-stock policies, backlogging and lost-sales, sample path equivalence, optimality and heuristics
Keyphrases
advance demand information optimality order base-stock policy backlogging case positive customer order lead time optimal production decision linear inventory cost lost-sales case sample path equivalence key word production capacity threshold value base-stock policy foreknowledge horizon customer order lead time restricted production capacity order base-stock policy single-item production-inventory problem positive effect idle time cost reduction order aggregation
