Setting basestock levels in multi-product systems with setups and random yield

This paper provides procedures for setting optimal, or near-optimal, basestock levels in a multi-product system with setups and random yield. The procedures are derived using a novel polling system model of the system that contains both queues for production orders and queues for temporary storage o...

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Bibliographic Details
Published in:IIE transactions 2008-12, Vol.40 (12), p.1158-1170
Main Authors: Grasman, Scott E., Olsen, Tava Lennon, Birge, John R.
Format: Article
Language:English
Subjects:
Approximation
Basestock
Buffer inventories
Costs
Heuristic
multi-product
Queuing theory
random yield
Routing
setups
Studies
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Summary:This paper provides procedures for setting optimal, or near-optimal, basestock levels in a multi-product system with setups and random yield. The procedures are derived using a novel polling system model of the system that contains both queues for production orders and queues for temporary storage of rework orders with routing occurring between these two types of queues. Both systems with backlogging and lost sales are analyzed using existing work on polling models with routing and possibly finite buffers. For a system with backlogging, we provide a cost function that is minimized by solving a set of single-item newsvendor problems. In systems with lost sales, each queue is given a finite buffer equal to the basestock level and excess demand is lost. We provide a cost function and show that finding optimal solutions for large problems is not tractable; thus, we provide a heuristic for finding the basestock levels and demonstrate the effectiveness of the heuristic and accuracy of the cost approximation through numerical tests.
ISSN:0740-817X
2472-5854
1545-8830
2472-5862
DOI:10.1080/07408170801967062