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Optimal policies for production-clearing systems under continuous-review

Author

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  • Germs, Remco
  • Van Foreest, Nicky D.
  • Kilic, Onur A.

Abstract

In this paper, we consider a production-clearing system with compound Poisson demand under continuous review. The production facility produces one type of item without stopping and at a constant rate, and stores the product into a buffer to meet future demand. To prevent high inventory levels, a clearing operation occasionally removes all or part of the inventory from the buffer. We prove that an (m, q)-policy, i.e., a policy that clears the buffer to level m as soon as the inventory hits a level q, minimizes the long run average holding and clearing cost. We also derive a numerically very efficient approach to compute the optimal parameters of the (m, q)-policy for models with backlogging and models with lost sales. With these numerical methods we show that tuning the clearing levels m and q in concert can lead to substantial cost savings.

Suggested Citation

  • Germs, Remco & Van Foreest, Nicky D. & Kilic, Onur A., 2016. "Optimal policies for production-clearing systems under continuous-review," European Journal of Operational Research, Elsevier, vol. 255(3), pages 747-757.
    • Handle: RePEc:eee:ejores:v:255:y:2016:i:3:p:747-757
    DOI: 10.1016/j.ejor.2016.05.004
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    References listed on IDEAS

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    1. Germs, Remco & Foreest, Nicky D. van, 2014. "Optimal Control of Production-Inventory Systems with Constant and Compound Poisson Demand," Research Report 14001-OPERA, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    2. Shaler Stidham, 1977. "Cost Models for Stochastic Clearing Systems," Operations Research, INFORMS, vol. 25(1), pages 100-127, February.
    3. Stidham, Shaler, 1974. "Stochastic clearing systems," Stochastic Processes and their Applications, Elsevier, vol. 2(1), pages 85-113, January.
    4. Nicky D. Van Foreest & Jacob Wijngaard, 2014. "On Optimal Policies for Production-Inventory Systems with Compound Poisson Demand and Setup Costs," Mathematics of Operations Research, INFORMS, vol. 39(2), pages 517-532, May.
    5. repec:dgr:rugsom:14001-opera is not listed on IDEAS
    6. Jacob Wijngaard & Shaler Stidham, 1986. "Forward Recursion for Markov Decision Processes with Skip-Free-to-the-Right Transitions, Part I: Theory and Algorithm," Mathematics of Operations Research, INFORMS, vol. 11(2), pages 295-308, May.
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    Cited by:

    1. Gayon, Jean-Philippe & Vercraene, Samuel & Flapper, Simme Douwe P., 2017. "Optimal control of a production-inventory system with product returns and two disposal options," European Journal of Operational Research, Elsevier, vol. 262(2), pages 499-508.

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