Two-critical-number control policy for a stochastic production inventory system with partial backlogging

Hsien-Jen Lin

International Journal of Production Research, 2017, vol. 55, issue 14, 4123-4135

Abstract: This paper deals with a production–inventory control model with partial backlogging, in which a reflected Brownian motion governs the inventory level variation. We consider a single storage facility with infinite capacity and assume that shortages are allowed and the total amount of stock-out is a mixture of backordering and lost sales. In addition, the production facility is controlled by a two-parameter (m, M) policy, which switches the production rate when the inventory level reaches the threshold values. The aim is to determine the optimal control parameters m and M by minimising the long-run total expected cost of the system. Some results are illustrated using numerical examples. A sensitivity analysis of the optimal solution with respect to major parameters is also carried out.

Date: 2017
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DOI: 10.1080/00207543.2016.1254353

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