Probabilistic Service Level Guarantees in Make-to-Stock Manufacturing Systems

• Authors: Dimitris Bertsimas;Ioannis Ch. Paschalidis
• Venue: Operations Research
• Year: 2001

We consider a model of a multiclass make-to-stock manufacturing system. External demand for each product class is met from the available finished goods inventory; unsatisfied demand is backlogged. The objective is to devise a production policy that minimizes inventory costs subject to guaranteeing stockout probabilities to stay bounded above by given constants e j , for each product classj( service level guarantees). Such a policy determines whether the facility should be producing ( idling decisions), and if it should, which product class ( sequencing decisions). Approximating the original system, we analyze a correspondingfluid model to make sequencing decisions and employlarge deviations techniques to make idling ones. We consider both linear and quadratic inventory cost structures to obtain apriority-based and ageneralized longest queue first-based production policy, respectively. An important feature of our model is that it accommodates autocorrelated demand and service processes, both critical features of modern failure-prone manufacturing systems.