Integrated production-delivery control policy for an unreliable manufacturing system and multiple retailers

Abstract

Production control policies have been studied in the literature for different types of unreliable manufacturing systems. But only few have been addressed to the unreliable manufacturer-retailer systems. We consider the integrated production and delivery control for an unreliable manufacturing system and multiple retailers. The retailers, supplied by the manufacturer through a common warehouse, are located in different sites and face different demand rates. We determine the optimal joint production and delivery control policy with the objective of minimizing the total cost, which comprises holding/backlog in addition to transportation costs. The stochastic optimal control and the impulse control theory are used to develop the optimal control policy (policy 1). The production is controlled by a hedging point policy and the delivery policy is governed by a state dependent economic order quantity. The optimal parameters of the proposed policy are determined by adopting a simulation-based optimization approach. A sensitivity analysis is conducted to verify the robustness of the results. An improved policy (policy 2) involving priority rules for delivery is proposed using a simulation-based approach. We conduct a comparative study of the new policies (policy 1 and 2) and the most relevant policy found in the literature (policy 3), and the results show that the new proposed improved policy (policy 2) outperforms others.