Investment Strategies for Flexible Resources
Management Science
Coordinating Investment, Production, and Subcontracting
Management Science
Dynamic Scheduling of a Two-Class Queue with Setups
Operations Research
Managing Capacity and Inventory Jointly in Manufacturing Systems
Management Science
Subcontracting in a make-to-stock production system, IPA gradients for an SFM
WSC '05 Proceedings of the 37th conference on Winter simulation
Inventory Control with Generalized Expediting
Operations Research
An inventory model with capacity flexibility in the existence of advance capacity information
Decision Support Systems
Scheduling with compressible and stochastic release dates
Computers and Operations Research
| Hi-index | 0.00 |
This paper considers a production-inventory problem where a manufacturer fulfills stochastic, stationary demand for a single product from a finished-goods inventory. The inventory can be replenished by two production resources, in-house production and a subcontractor, which both have finite capacity. We construct a Brownian approximation of the optimal control problem, assuming that the manufacturer uses a "dual base-stock" policy to control replenishment from the two sources and that her objective is to minimize average cost. A closed-form expression is obtained for one optimal base-stock policy and an analytical expression is derived from which the other optimal base stock can be computed numerically. We show conditions under which the objective is convex in capacity, and the unique globally optimal capacity can be computed numerically. We thus provide a tractable approximation to the two-source problem, which is generally intractable. We demonstrate the accuracy of this approximation for an M/M/1 model. We also draw managerial insight from the Brownian optimal base-stock results into how the optimal base-stock policies control the inventory distribution and under what conditions the contingent source is used to build inventory or to resolve backorders.