The Compensation Method Applied to a One-Product Production Inventory Problem
Author(s)
Graves, Stephen C.; Keilson, Julian
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Show full item recordAbstract
This paper considers a one-product, one-machine production/inventory probelm. Demand requests for the product are governed by a Poisson process with demand size being an exponential random variable. The production facility may be in production or idle; while in production, the facility produces continuously at a constant rate. The objective is to minimize system costs consisting of setup costs, inventory holding costs, and backorder costs. Given a two-critical-number policy, the problem is analyzed as a constrained Markov process using the compensation method. The policy space may then be searched to find the optimal policy.
Date issued
1978-07Publisher
Massachusetts Institute of Technology, Operations Research Center
Series/Report no.
Operations Research Center Working Paper;OR 077-78