Optimal Policies for Production/Inventory Systems with Finite Capacity and Markov-Modulated Demand and Supply Processes

Guillermo Gallego () and Haichao Hu

Annals of Operations Research, 2004, vol. 126, issue 1, 41 pages

Abstract: In many production/inventory systems, not only is the production/inventory capacity finite, but the systems are also subject to random production yields that are influenced by factors such as breakdowns, repairs, maintenance, learning, and the introduction of new technologies. In this paper, we consider a single-item, single-location, periodic-review model with finite capacity and Markov modulated demand and supply processes. When demand and supply processes are driven by two independent, discrete-time, finite-state, time-homogeneous Markov chains, we show that a modified, state-dependent, inflated base-stock policy is optimal for both the finite and infinite horizon planning problems. We also show that the finite-horizon solution converges to the infinite-horizon solution. Copyright Kluwer Academic Publishers 2004

Keywords: production/inventory system; finite-capacity; Markov-modulated demand and Markov-modulated yield; modified state-dependent inflated base-stock policy (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (13)

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DOI: 10.1023/B:ANOR.0000012274.69117.90

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