Optimal control of a production-inventory system with both backorders and lost sales

Saif Benjaafar, Mohsen Elhafsi, Tingliang Huang

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

We consider the optimal control of a production-inventory system with a single product and two customer classes where items are produced one unit at a time. Upon arrival, customer orders can be fulfilled from existing inventory, if there is any, backordered, or rejected. The two classes are differentiated by their backorder and lost sales costs. At each decision epoch, we must determine whether or not to produce an item and if so, whether to use this item to increase inventory or to reduce backlog. We must also determine whether or not to satisfy demand from a particular class (should one arise), backorder it, or reject it. We formulate the problem as a Markov decision process and use it to characterize the structure of the optimal policy. Using numerical results, we compare the performance of the optimal policy against several heuristics.

Original languageEnglish (US)
Title of host publicationIIE Annual Conference and Expo 2008
Pages1957-1963
Number of pages7
StatePublished - Dec 1 2008
EventIIE Annual Conference and Expo 2008 - Vancouver, BC, Canada
Duration: May 17 2008May 21 2008

Other

OtherIIE Annual Conference and Expo 2008
CountryCanada
CityVancouver, BC
Period5/17/085/21/08

Keywords

  • Admission control
  • Inventory rationing
  • Make-to-stock queues
  • Markov decision processes
  • Production and inventory control

Fingerprint Dive into the research topics of 'Optimal control of a production-inventory system with both backorders and lost sales'. Together they form a unique fingerprint.

Cite this