Multi-objective Decisions on Capacity Planning and Production−Inventory Control under Uncertainty

Abstract

In the presence of a changing and stochastic environment, firms must appropriately choose the timing and sizes of capacity acquisition as well as the production decisions to replenish inventory, such that various conflicting goals are satisfied. This paper considers multicriteria decision making on joint capacity planning and inventory control under uncertainty. We formulate this class of problems into a multi-objective Markov decision process, which simultaneously searches for both capacity and inventory policies that optimize multiple objectives. In a previous work, we developed a multi-objective dynamic programming algorithm to solve small problems by propagating Pareto optimal solutions recursively backward in time. The numerical intractability of the rigorous algorithm for large problems necessitates approximation approaches. However, and importantly, on the basis of the optimality equations constructed in the dynamic programming framework, we are able to obtain analytical insights into the structure...