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

Rohit Bhatnagar and Bing Lin

European Journal of Operational Research, 2019, vol. 275, issue 3, 957-970

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.

Keywords: Inventory; Transshipment; Make-to-stock; Dynamic programming/Optimal control; Heuristic policy (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:ejores:v:275:y:2019:i:3:p:957-970