Production Planning under Stochastic Time-varying Demand: Flexible Service Level Approach

Authors:	Rantala Juuso, Tampere University of Technology, Finland Koivisto Hannu, Tampere University of Technology, Finland
Topic:	5.2 Manufacturing Modelling for Management and Control
Session:	Manufacturing Modelling, Management and Control
Keywords:	Inventory control, production planning, dynamic programming, stochastic control, supply chain management

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 shortage 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.