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Two-critical-number control policy for a stochastic production inventory system with partial backlogging

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  • Hsien-Jen Lin

Abstract

This paper deals with a production–inventory control model with partial backlogging, in which a reflected Brownian motion governs the inventory level variation. We consider a single storage facility with infinite capacity and assume that shortages are allowed and the total amount of stock-out is a mixture of backordering and lost sales. In addition, the production facility is controlled by a two-parameter (m, M) policy, which switches the production rate when the inventory level reaches the threshold values. The aim is to determine the optimal control parameters m and M by minimising the long-run total expected cost of the system. Some results are illustrated using numerical examples. A sensitivity analysis of the optimal solution with respect to major parameters is also carried out.

Suggested Citation

  • Hsien-Jen Lin, 2017. "Two-critical-number control policy for a stochastic production inventory system with partial backlogging," International Journal of Production Research, Taylor & Francis Journals, vol. 55(14), pages 4123-4135, July.
    • Handle: RePEc:taf:tprsxx:v:55:y:2017:i:14:p:4123-4135
    DOI: 10.1080/00207543.2016.1254353
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