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Planning Production on an Unreliable Machine for Multiple Items Subject to Stochastic Demand

In: Handbook of Newsvendor Problems

Author

Listed:
  • David Kletter

    (Booz Allen Hamilton)

Abstract

We develop an extension of the classical newsvendor model that incorporates multiple items, setup times, and an unreliable machine. This model is motivated by applications at metal stamping plants where machine reliability is a key source of uncertainty. Given a fixed production schedule, a finite horizon, and a known demand distribution, we formulate an extension of the newsvendor model, derive important properties of this model, and exploit these properties to provide a solution algorithm that determines the cost minimizing production quantities. Finally, we present three simple extensions to the model: (1) a method for rescheduling within the planning horizon, (2) an extension to evaluate whether or not to purchase the option to run overtime within the planning horizon, and (3) an extension that permits the modeling of a machine that operates at a different speed depending on the part being produced.

Suggested Citation

  • David Kletter, 2012. "Planning Production on an Unreliable Machine for Multiple Items Subject to Stochastic Demand," International Series in Operations Research & Management Science, in: Tsan-Ming Choi (ed.), Handbook of Newsvendor Problems, edition 127, chapter 0, pages 277-295, Springer.
    • Handle: RePEc:spr:isochp:978-1-4614-3600-3_12
    DOI: 10.1007/978-1-4614-3600-3_12
    as

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