Dynamic versus static control policies in single stage production-inventory systems

Abstract

In this paper, two approaches of production-inventory control are considered: the future requirements-based approach and the inventory consumption-based approach. We focus on a single-stage and single-item inventory system under non-stationary demand, information about which is provided by means of forecasts. Forecasts and forecast uncertainties are assumed to be exogenous data known in advance at each period over a forecasting horizon. Three forecast-based dynamic inventory control policies are analysed. These dynamic policies are extensions of the standard static re-order point and order-up-to-level policies that have been developed under the stationary demand assumption. The policies’ parameters are derived by using a sequential optimization procedure. A numerical investigation is conducted based on theoretical generated data; the results demonstrate the benefit of using the dynamic policies when compared with the static ones. Connections between the analysed policies are also highlighted.