A simple approximation for a multistage capacitated production‐inventory system

Paul Glasserman and Sridhar Tayur

Naval Research Logistics (NRL), 1996, vol. 43, issue 1, 41-58

Abstract: We develop a simple approximation for multistage production‐inventory systems with limited production capacity and variable demands. Each production stage follows a base‐stock policy for echelon inventory, constrained by production capacity and the availability of upstream inventory. Our objective is to find base‐stock levels that approximately minimize holding and backorder costs. The key step in our procedure approximates the distribution of echelon inventory by a sum of exponentials; the parameters of the exponentials are chosen to match asymptotically exact expressions. The computational requirements of the method are minimal. In a test bed of 72 problems, each with five production stages, the average relative error for our approximate optimization procedure is 1.9%. © 1996 John Wiley & Sons, Inc.

Date: 1996
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https://doi.org/10.1002/(SICI)1520-6750(199602)43:13.0.CO;2-N

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Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:43:y:1996:i:1:p:41-58

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