Production control policies to maintain service levels in different seasons

Abstract

We analyze a manufacturing system that produces a single type of product to serve multiple classes of customers with seasonal demands. The manufacturer has the flexibility to vary production rates to adapt to seasonal demands. We model the seasonal demand using a Markov modulated Poisson process, and analyze the underlying Markov decision problem to derive optimal production and inventory control policies for the manufacturer. We show that the optimal policy is characterized by a season dependent inventory threshold vector for adjusting production rates and rationing inventory. Further, we impose service level constraints according to the customer classes in each season, and analyze the impact of the service level constraints on the optimal policy and cost under different seasonal demand conditions.