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The joint transshipment and production control policies for multi-location production/inventory systems

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  • Bhatnagar, Rohit
  • Lin, Bing

Abstract

In this paper, we study the joint transshipment and production control policies for multi-location production/inventory systems in which items are manufactured and stocked at each location to meet incoming demand. We formulate the problem as a make-to-stock queue to gain insight into the following questions: (1) How much demand at a location should be covered by transshipment from other locations, and when to produce or stop production? (2) Is there a simple structure associated with the optimal policy, and whether a simple decision rule can be implemented for transshipment control? (3) Can effective heuristic policies be developed to solve the multi-location problems? For the two-location problem, we characterize the optimal policy as monotone switching-curve policy. To address the multi-location problem, we develop two heuristic policies. One is obtained from the one-step policy improvement based on policy iteration and the other from the one-step lookahead method based on the approximation of the optimal cost function. Numerical examples are used to illustrate the optimal and heuristic policies and compare their performance for various cases.

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  • Bhatnagar, Rohit & Lin, Bing, 2019. "The joint transshipment and production control policies for multi-location production/inventory systems," European Journal of Operational Research, Elsevier, vol. 275(3), pages 957-970.
    • Handle: RePEc:eee:ejores:v:275:y:2019:i:3:p:957-970
    DOI: 10.1016/j.ejor.2018.12.025
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