Optimal policies for production/inventory systems with finite capacity and Markov-modulated demand and supply processes

Optimal policies for production/inventory systems with finite capacity and Markov-modulated demand and supply processes

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Article ID: iaor20042458
Country: Netherlands
Volume: 126
Issue: 1
Start Page Number: 21
End Page Number: 41
Publication Date: Feb 2004
Journal: Annals of Operations Research
Authors: ,
Keywords: markov processes
Abstract:

In many production/inventory systems, not only is the production/inventory capacity finite, but the systems are also subject to random production yields that are influenced by factors such as breakdowns, repairs, maintenance, learning, and the introduction of new technologies. In this paper, we consider a single-item, single-location, periodic-review model with finite capacity and Markov modulated demand and supply processes. When demand and supply processes are driven by two independent, discrete-time, finite-state, time-homogeneous Markov chains, we show that a modified, state-dependent, inflated base-stock policy is optimal for both the finite and infinite horizon planning problems. We also show that the finite-horizon solution converges to the infinite-horizon solution.

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