Stock positioning and performance estimation in serial production–transportation systems

This paper considers serial production–transportation systems. In recent years, researchers have developed a fairly simple functional equation that characterizes optimal system behavior, under the assumption of constant leadtimes. We show that the equation covers a variety of stochastic-leadtime systems as well. Still, many basic managerial issues remain obscure: When should stock be held at upstream stages? Which system attributes drive overall performance, and how? To address these questions, we develop and analyze several heuristic methods, inspired by observation of common practice and numerical experiments. One of these heuristics yields a bound on the optimal average cost. We also study a set of numerical examples, to gain insight into the nature of the optimal solution and to evaluate the heuristics.