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Optimal Policy for a Two-Stage Assembly System under Random Demand

Author

Listed:
  • Charles P. Schmidt

    (University of Alabama, University, Alabama)

  • Steven Nahmias

    (The University of Santa Clara, Santa Clara, California)

Abstract

This paper considers an inventory system in which an end product is assembled from two components, each of which is ordered from an external supplier. Only the end product has final demand, which is assumed to be random. Using the functional equation approach of dynamic programming, we characterize the forms of both the optimal order policy for the components and the optimal assembly policy of the end product for a multiperiod problem of arbitrary, but finite length. We believe that this work represents the only exact analysis of an MRP-type assembly system when demand is stochastic.

Suggested Citation

  • Charles P. Schmidt & Steven Nahmias, 1985. "Optimal Policy for a Two-Stage Assembly System under Random Demand," Operations Research, INFORMS, vol. 33(5), pages 1130-1145, October.
    • Handle: RePEc:inm:oropre:v:33:y:1985:i:5:p:1130-1145
    DOI: 10.1287/opre.33.5.1130
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