Economic consequences of a production and inventory control policy

Economic consequences of a production and inventory control policy

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Article ID: iaor2005440
Country: United Kingdom
Volume: 42
Issue: 17
Start Page Number: 3419
End Page Number: 3431
Publication Date: Jan 2004
Journal: International Journal of Production Research
Authors: ,
Keywords: production
Abstract:

The economic performance of a generalized Order-Up-To policy is investigated in response to an autoregressive stochastic demand process. Focus is on the case where the physical production/distribution lead time is one period and where demand is forecasted with simple exponential smoothing. Two sets of convex piece-wise linear costs are considered. The first set is the traditional inventory holding and backlog costs. The second set of costs is piece-wise linear and increasing convex costs associated with the production order rate within and above a capacity constraint. Numerical investigations reveal that the classical Order-Up-To policy is no longer optimal when a broader range of costs is considered in the objective function.

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