The Compensation Method Applied to a One-Product Production Inventory Problem
Name
OR-077-78.pdf
Size
1.03 MB
Format
Adobe PDF
Checksum (MD5)
fe26144b0273e36c03223c493cc488a6
Author(s)
Graves, Stephen C.
Keilson, Julian
Date Issued
July 1978
Publisher
Massachusetts Institute of Technology, Operations Research Center
Series/Report no.
Operations Research Center Working Paper;OR 077-78
Abstract
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.
MIT Department
Massachusetts Institute of Technology. Operations Research Center
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