Probabilistic Service Level Guarantees in Make-to-Stock Manufacturing Systems

• Published in: Operations research Vol. 49; no. 1; pp. 119 - 133
• Main Authors: Bertsimas, Dimitris, Paschalidis, Ioannis Ch
• Format: Journal Article
• Language: English
• Published: Linthicum INFORMS 01.01.2001; Operations Research Society of America; Institute for Operations Research and the Management Sciences
• Subjects: Approximation; Cost efficiency; Cost structure; Costs; Customer satisfaction; Demand; Heuristic; Inventories; Inventory; Inventory Production: multi-item, make-to-stock systems; Make to stock; Manufacturing; Mathematical models; Minimization of cost; Modeling; Operations research; Probability; Production capacity; Production planning; Production policy; Queues, approximations: large deviations, fluid models; Queuing; Scheduling; Sequencing; Studies
• ISSN: 0030-364X; 1526-5463
• DOI: 10.1287/opre.49.1.119.11183

We consider a model of a multiclass make-to-stock manufacturing system. External demand for each product class is met from the available finished goods inventory; unsatisfied demand is backlogged. The objective is to devise a production policy that minimizes inventory costs subject to guaranteeing stockout probabilities to stay bounded above by given constants j , for each product class j ( service level guarantees ). Such a policy determines whether the facility should be producing ( idling decisions ), and if it should, which product class ( sequencing decisions ). Approximating the original system, we analyze a corresponding fluid model to make sequencing decisions and employ large deviations techniques to make idling ones. We consider both linear and quadratic inventory cost structures to obtain a priority-based and a generalized longest queue first-based production policy, respectively. An important feature of our model is that it accommodates autocorrelated demand and service processes, both critical features of modern failure-prone manufacturing systems.