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A finite-horizon, stochastic optimal control policy for a production–inventory system with backlog-dependent lost sales

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  • Gonen Singer
  • Eugene Khmelnitsky

Abstract

This article considers a problem of optimal production control of a one-product-type production–inventory system. The demand is a discrete-time stochastic process, while production of a limited capacity is continious in time. The dynamics of the inventory over a finite time horizon are investigated and an optimal feedback strategy for production control under a backlog-dependent lost sales effect is developed. This strategy is called a target level strategy since, contrary to the existing production–inventory control strategies, it determines an optimal target inventory level as a function of time period and the initial stock at that period. Numerical examples illustrate the applicability of the developed solutions.

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  • Gonen Singer & Eugene Khmelnitsky, 2010. "A finite-horizon, stochastic optimal control policy for a production–inventory system with backlog-dependent lost sales," IISE Transactions, Taylor & Francis Journals, vol. 42(12), pages 855-864.
    • Handle: RePEc:taf:uiiexx:v:42:y:2010:i:12:p:855-864
    DOI: 10.1080/0740817X.2010.491498
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    Cited by:

    1. Eugene Khmelnitsky & Gonen Singer, 2015. "An optimal inventory management problem with reputation-dependent demand," Annals of Operations Research, Springer, vol. 231(1), pages 305-316, August.

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