Optimal inventory policies for assembly systems under random demands

This paper considers an inventory model of an assembly system with random demands and proportional costs of production and stock holding activities. The model is a generalization of the facilities in series model of Clark and Scarf. Under an assumption on the initial stock levels that in any case should appear in the long run (Long-Run Balance), it is demonstrated that the assembly system can be remodeled as a series system. Hence, simple reorder policies are optimal and the computational requirements are drastically reduced. Simple approximate policies are suggested for the generally short period of time when systems might be out of long-run balance. There is some discussion of extensions.