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A simple approximation for a multistage capacitated production‐inventory system
Author(s) -
Glasserman Paul,
Tayur Sridhar
Publication year - 1996
Publication title -
naval research logistics (nrl)
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.665
H-Index - 68
eISSN - 1520-6750
pISSN - 0894-069X
DOI - 10.1002/(sici)1520-6750(199602)43:1<41::aid-nav3>3.0.co;2-n
Subject(s) - exponential function , mathematical optimization , production (economics) , stock (firearms) , simple (philosophy) , computer science , upstream (networking) , exponential distribution , mathematics , statistics , economics , engineering , mechanical engineering , mathematical analysis , computer network , philosophy , epistemology , macroeconomics
We develop a simple approximation for multistage production‐inventory systems with limited production capacity and variable demands. Each production stage follows a base‐stock policy for echelon inventory, constrained by production capacity and the availability of upstream inventory. Our objective is to find base‐stock levels that approximately minimize holding and backorder costs. The key step in our procedure approximates the distribution of echelon inventory by a sum of exponentials; the parameters of the exponentials are chosen to match asymptotically exact expressions. The computational requirements of the method are minimal. In a test bed of 72 problems, each with five production stages, the average relative error for our approximate optimization procedure is 1.9%. © 1996 John Wiley & Sons, Inc.