Use of advance demand information in multi-stage production-inventory systems with multiple demand classes

Abstract

This paper considers three-stage production-inventory systems serving two customer classes, where only one class provides advance demand information and early order fulfilment is acceptable. We propose a new approach for production replenishment and order fulfilment in such systems that uses advance demand information for performance improvement. The approach combines the benefits of early fulfilment and Kanban-based pull systems. Simulation is used to establish the performance of the resulting policy vs. two existing policies, for a variety of production scenarios and cost structures. A lower bound on total cost is also established using a simulation-based procedure. In general, early fulfilment with one-for-one replenishment is shown to provide greater benefit than making items to order. Neither of the existing policies, however, was found to use advance demand information as effectively as the proposed approach, which outperformed the existing policies in every case considered. Additionally, the proposed policy has the advantage of both retaining its benefit at high levels of system utilisation and increasing benefit up to the maximum level of advance demand information provided.