Linear inflation rules for the random yield production control problem with uncertain demand: Analysis and computations

Abstract

Since the dawn of wafer fabrication and the production of microelectronic parts a fundamental characteristic of this environment has been uncertainty in production yields and in demand for product. The impact of the uncertainty is so prevalent that even deterministic models in practice have incorporated some allowance for uncertainty through features such as date effective yields, moving average capacity, etc. In this paper, we propose a simple heuristic approach for the inventory control problem with stochastic demand and multiplicative random yield. Our heuristic tries to find the best candidate within a class of policies which are referred to in the literature as the linear inflation rule (LIR) policies. Our approach is computationally fast, easy to implement and intuitive to understand. Moreover, we find that in a significant number of instances our heuristic performs better than several other well-known heuristics that are available in the literature.