Abstract
Consider stochastic production-inventory control problem in which there are multiple capacity sources, multiple heterogeneous products, non-stationary demand and time-varying costs. If shortage2 costs can be evaluated the natural objective is to minimize expected production, inventory and shortage costs. Otherwise one can use service level requirements as target inventory while trying to minimize costs. In this paper we present the algorithm for solving optimal production plan with service level requirements. The cost for the deviation from target value can be any differentiable and convex function. However in this paper we study the problem in which deviation cost is related to underlying demand distribution.
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