An integrated replenishment and production control policy under inventory inaccuracy and time-delay

Abstract

Inventory inaccuracy has a significant negative impact on the performance of raw materials replenishment and production control. It usually leads to high inventory holding cost or large backlog penalty. To hedge against it, we investigate a replenishment and production control problems for a multiple machines and multiple product-types production/inventory system with inventory inaccuracy. The objective is to minimize the average production cost, including the inventory holding cost and the backlog penalty. In addition to inventory inaccuracy, the lead-time of raw materials replenishment and the unreliability of machines are also taken into consideration. In light of the principle of dynamic programming, a simplified optimal replenishment and production control policy is constructed based on the assumption that the records of inventories are completely accurate. To overcome the shortcomings of the simplified policy in hedging against inventory inaccuracy, a conditional expectation-based replenishment and production control policy is developed based on the fundamental structure of the simplified optimal replenishment and production control policy, and the conditional probability of the physical inventory level. Numerical experiments are conducted to examine the performance of the proposed policy for hedging against inventory inaccuracy, and sensitivity analysis is carried out to study how the parameters of the production/inventory system and the proposed policy affect the average production cost.