Optimal policies for production-clearing systems under continuous-review

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

European Journal of Operational Research, 2016, vol. 255, issue 3, 747-757

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.

Keywords: Production-clearing systems; Inventory systems; Stochastic demand; Continuous review; Optimal policies (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:255:y:2016:i:3:p:747-757

DOI: 10.1016/j.ejor.2016.05.004

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