Optimization of two-stage production/inventory systems under order base stock policy with advance demand information

Authors

Department of Architecture, Civil Engineering and Industrial Management Engineering, Nagoya Institute of Technology, Nagoya, 466-8555, Japan

Abstract

It is important to share demand information among the members in supply chains. In recent years, production and inventory systems with advance demand information (ADI) have been discussed, where advance demand information means the information of demand which the decision maker obtains before the corresponding actual demand arrives. Appropriate production and inventory control using demand information leads to the decrease of inventory and backlog costs. For a single stage system, the optimal base stock and release lead time have been discussed in the literature. In practical production systems the manufacturing system has multiple processes. The multiple stage production and inventory system with ADI, however, has been analyzed by simulation or assuming exponential processing time. That is, their theoretical analysis and optimization of release lead time and base stock level have little been obtained because of its difficulty. In this paper, theoretical analysis of a two-stage production inventory system with advance demand information is developed, where the processing time is assumed deterministic and identical; demand arrival process is Poisson, and an order base stock policy is adopted. Using the analytical results, optimal release lead time and optimal base stock levels for minimizing the average cost on the holding and backlog costs are explicitly derived.

Keywords