Probabilistic Service Level Guarantees in Make-to-Stock Manufacturing Systems

Dimitris Bertsimas () and Ioannis Ch. Paschalidis ()
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Dimitris Bertsimas: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
Ioannis Ch. Paschalidis: Department of Manufacturing Engineering, Boston University, Boston, Massachusetts 02215

Operations Research, 2001, vol. 49, issue 1, 119-133

Abstract: We consider a model of a multiclass make-to-stock manufacturing system. External demand for each product class is met from the available finished goods inventory; unsatisfied demand is backlogged. The objective is to devise a production policy that minimizes inventory costs subject to guaranteeing stockout probabilities to stay bounded above by given constants (epsilon) j , for each product class j ( service level guarantees ). Such a policy determines whether the facility should be producing ( idling decisions ), and if it should, which product class ( sequencing decisions ). Approximating the original system, we analyze a corresponding fluid model to make sequencing decisions and employ large deviations techniques to make idling ones. We consider both linear and quadratic inventory cost structures to obtain a priority-based and a generalized longest queue first-based production policy, respectively. An important feature of our model is that it accommodates autocorrelated demand and service processes, both critical features of modern failure-prone manufacturing systems.

Keywords: Inventory/Production: multi-item; make-to-stock systems; Queues; approximations: large deviations; fluid models (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (8)

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