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Optimal Production and Inventory Policy for Multiple Products Under Resource Constraints

Author

Listed:
  • Gregory A. DeCroix

    (School of Business Administration, University of Washington, Seattle, Washington 98195)

  • Antonio Arreola-Risa

    (Lowry Mays College and Graduate School of Business, Texas A&M University, College Station, Texas 77843-4217)

Abstract

We show that a modified base-stock policy is optimal for multiproduct, infinite-horizon production-inventory systems, where demand for the products is random and the products share a finite resource every period. We characterize the optimal policy for the case of homogeneous products. Because of the difficulty in computing the optimal base-stock levels for the heterogeneous case, we propose a heuristic that is simple enough for practical applications. We present numerical results that suggest that the heuristic yields near-optimal solutions.

Suggested Citation

  • Gregory A. DeCroix & Antonio Arreola-Risa, 1998. "Optimal Production and Inventory Policy for Multiple Products Under Resource Constraints," Management Science, INFORMS, vol. 44(7), pages 950-961, July.
    • Handle: RePEc:inm:ormnsc:v:44:y:1998:i:7:p:950-961
    DOI: 10.1287/mnsc.44.7.950
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    References listed on IDEAS

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    1. Paul Glasserman, 1996. "Allocating Production Capacity Among Multiple Products," Operations Research, INFORMS, vol. 44(5), pages 724-734, October.
    2. A. Federgruen & P. Zipkin, 1986. "An Inventory Model with Limited Production Capacity and Uncertain Demands I. The Average-Cost Criterion," Mathematics of Operations Research, INFORMS, vol. 11(2), pages 193-207, May.
    3. Frank W. Ciarallo & Ramakrishna Akella & Thomas E. Morton, 1994. "A Periodic Review, Production Planning Model with Uncertain Capacity and Uncertain Demand---Optimality of Extended Myopic Policies," Management Science, INFORMS, vol. 40(3), pages 320-332, March.
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