Optimal policies for Production-Clearing Systems under Continuous-Review

R. Germs, Nicky D. van Foreest, Onur A. Kilic

Research output: Contribution to journalArticleAcademicpeer-review

3 Citations (Scopus)

Abstract

In this paper, we consider a production-clearing system with compound Poisson demand under continuous review. The production facility produces one type of item without stopping and at a constant rate, and stores the product into a buffer to meet future demand. To prevent high inventory levels, a clearing operation occasionally removes all or part of the inventory from the buffer. We prove that an (m, q)-policy, i.e., a policy that clears the buffer to level m as soon as the inventory hits a level q, minimizes the long run average holding and clearing cost. We also derive a numerically very efficient approach to compute the optimal parameters of the (m, q)-policy for models with backlogging and models with lost sales. With these numerical methods we show that tuning the clearing levels m and q in concert can lead to substantial cost savings.
Original languageEnglish
Pages (from-to)747-757
JournalEuropean Journal of Operational Research
Volume255
Issue number3
DOIs
Publication statusPublished - 2016

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