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A simple approximation for a multistage capacitated production‐inventory system

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  • Paul Glasserman
  • Sridhar Tayur

Abstract

We develop a simple approximation for multistage production‐inventory systems with limited production capacity and variable demands. Each production stage follows a base‐stock policy for echelon inventory, constrained by production capacity and the availability of upstream inventory. Our objective is to find base‐stock levels that approximately minimize holding and backorder costs. The key step in our procedure approximates the distribution of echelon inventory by a sum of exponentials; the parameters of the exponentials are chosen to match asymptotically exact expressions. The computational requirements of the method are minimal. In a test bed of 72 problems, each with five production stages, the average relative error for our approximate optimization procedure is 1.9%. © 1996 John Wiley & Sons, Inc.

Suggested Citation

  • Paul Glasserman & Sridhar Tayur, 1996. "A simple approximation for a multistage capacitated production‐inventory system," Naval Research Logistics (NRL), John Wiley & Sons, vol. 43(1), pages 41-58, February.
    • Handle: RePEc:wly:navres:v:43:y:1996:i:1:p:41-58
    DOI: 10.1002/(SICI)1520-6750(199602)43:13.0.CO;2-N
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    References listed on IDEAS

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    1. Yong-Joo Lee & Paul Zipkin, 1992. "Tandem Queues with Planned Inventories," Operations Research, INFORMS, vol. 40(5), pages 936-947, October.
    2. Tayur, S.R., 1992. "Computing the Optimal Policy for Capacitated Inventory Models," GSIA Working Papers 1992-07, Carnegie Mellon University, Tepper School of Business.
    3. Pierre L'Ecuyer & Peter W. Glynn, 1994. "Stochastic Optimization by Simulation: Convergence Proofs for the GI/G/1 Queue in Steady-State," Management Science, INFORMS, vol. 40(11), pages 1562-1578, November.
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    2. Robert N. Boute & Marc R. Lambrecht & Benny Van Houdt, 2007. "Performance evaluation of a production/inventory system with periodic review and endogenous lead times," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(4), pages 462-473, June.
    3. Stephen C. Graves & Tor Schoenmeyr, 2016. "Strategic Safety-Stock Placement in Supply Chains with Capacity Constraints," Manufacturing & Service Operations Management, INFORMS, vol. 18(3), pages 445-460, July.
    4. Woonghee Tim Huh & Ganesh Janakiraman & Mahesh Nagarajan, 2016. "Capacitated Multiechelon Inventory Systems: Policies and Bounds," Manufacturing & Service Operations Management, INFORMS, vol. 18(4), pages 570-584, October.
    5. Fangruo Chen & Rungson Samroengraja, 2004. "Order Volatility and Supply Chain Costs," Operations Research, INFORMS, vol. 52(5), pages 707-722, October.
    6. Hernan Caceres & Dongchen Yu & Alexander Nikolaev, 2018. "Evaluating shortfall distributions in periodic inventory systems with stochastic endogenous demands and lead-times," Annals of Operations Research, Springer, vol. 271(2), pages 405-427, December.
    7. Woonghee Tim Huh & Ganesh Janakiraman & Mahesh Nagarajan, 2010. "Technical Note ---Capacitated Serial Inventory Systems: Sample Path and Stability Properties Under Base-Stock Policies," Operations Research, INFORMS, vol. 58(4-part-1), pages 1017-1022, August.

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