Approximations for a lost-sales production/inventory problem with service level constraints

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Abstract

This paper deals with a one-product production/inventory model, where the production rate can be dynamically adjusted in order to cope with random fluctuations in demand. The inventory level is controlled by using one of two possible production rates where under each production rate the production is continually added to the inventory. The demand process for the product is described by a compound Poisson process. Also, excess demand is lost. In accordance with common practice we consider service measures as the average number of lost-sales occurrences per unit time and the fraction of demand that is lost. For a two-critical-number control rule we derive practically useful approximations for the switch-over level in order to achieve a prespecified service level. Numerical experiments reveal that the approximations are quite accurate.
Original languageEnglish
Pages (from-to)729-737
JournalManagement Science
Volume31
Issue number6
DOIs
Publication statusPublished - 1985

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