Production/inventory systems with a stochastic production rate under a continuous review policy

A single production facility is dedicated to producing one product with completed units going directly into inventory. The unit production time is a random variable. The demand for the product is given by a Poisson process and is supplied directly from inventory when available, or is backordered until it is produced by the production facility. Relevant costs are a linear inventory holding cost, a linear backorder cost, and a fixed setup cost for initiating a production run. The objective is to find a control policy that minimizes the expected cost per time unit.The problem may be modeled as an M/G/1 queueing system, for which the optimal decision policy is a two-critical-number policy. Cost expressions are derived as functions of the policy parameters, and based on convexity properties of these cost expressions, an efficient search procedure is proposed for finding the optimal policy. Computational test results demonstrating the efficiency of the search procedure and the behavior of the optimal policy are presented.