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Production Smoothing with Fluctuating Price

Author

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  • Dov Pekelman

    (University of Chicago)

Abstract

The model presented in this paper deals with a firm facing a known price which varies over time during some finite period [0, T]. The firm wishes to determine the production rate at each instant of that interval which will maximize profit, when adjustment of output incurs additional cost. In the paper we characterize the optimal solution and construct a forward algorithm which is shown to converge to the unique optimal solution. We also specify the conditions for planning and forecast horizons, both of which can be identified by the described algorithm. We use control theory to achieve these results.

Suggested Citation

  • Dov Pekelman, 1975. "Production Smoothing with Fluctuating Price," Management Science, INFORMS, vol. 21(5), pages 576-590, January.
    • Handle: RePEc:inm:ormnsc:v:21:y:1975:i:5:p:576-590
    DOI: 10.1287/mnsc.21.5.576
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    Cited by:

    1. Suresh Chand & Vernon Ning Hsu & Suresh Sethi, 2002. "Forecast, Solution, and Rolling Horizons in Operations Management Problems: A Classified Bibliography," Manufacturing & Service Operations Management, INFORMS, vol. 4(1), pages 25-43, September.
    2. Abhijit Upasani & Reha Uzsoy, 2008. "Incorporating manufacturing lead times in joint production-marketing models: A review and some future directions," Annals of Operations Research, Springer, vol. 161(1), pages 171-188, July.

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