Inventory control in production–inventory systems with random yield and rework : The unit-tracking approach
(2022) In Production and Operations Management 31(6). p.2628-2645- Abstract
This paper considers a single-stage make-to-stock production–inventory system under random demand and random yield, where defective units are reworked. We examine how to set cost-minimizing production/order quantities in such imperfect systems, which is challenging because a random yield implies an uncertain arrival time of outstanding units and the possibility of them crossing each other in the pipeline. To determine the order/production quantity in each period, we extend the unit-tracking/decomposition approach, taking into account the possibility of order-crossing, which is new to the literature and relevant to other planning problems. The extended unit-tracking/decomposition approach allows us to determine the optimal base-stock... (More)
This paper considers a single-stage make-to-stock production–inventory system under random demand and random yield, where defective units are reworked. We examine how to set cost-minimizing production/order quantities in such imperfect systems, which is challenging because a random yield implies an uncertain arrival time of outstanding units and the possibility of them crossing each other in the pipeline. To determine the order/production quantity in each period, we extend the unit-tracking/decomposition approach, taking into account the possibility of order-crossing, which is new to the literature and relevant to other planning problems. The extended unit-tracking/decomposition approach allows us to determine the optimal base-stock level and to formulate the exact and an approximate expression of the per-period cost of a base-stock policy. The same approach is also used to develop a state-dependent ordering policy. The numerical study reveals that our state-dependent policy can reduce inventory-related costs compared to the base-stock policy by up to 6% and compared to an existing approach from the literature by up to 4.5%. From a managerial perspective, the most interesting finding is that a high mean production yield does not necessarily lead to lower expected inventory-related costs. This counterintuitive finding, which can be observed for the most commonly used yield model, is driven by an increased probability that all the units in a batch are either of good or unacceptable quality.
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- author
- Berling, Peter LU and Sonntag, Danja R. LU
- organization
- publishing date
- 2022
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- base-stock policy, inventory control, random yield, rework, unit-tracking approach
- in
- Production and Operations Management
- volume
- 31
- issue
- 6
- pages
- 2628 - 2645
- publisher
- Wiley-Blackwell
- external identifiers
-
- scopus:85127788527
- ISSN
- 1059-1478
- DOI
- 10.1111/poms.13706
- language
- English
- LU publication?
- yes
- id
- a49624ed-de68-4653-944f-b5df06cc04bd
- date added to LUP
- 2022-06-28 13:30:12
- date last changed
- 2023-03-07 01:52:44
@article{a49624ed-de68-4653-944f-b5df06cc04bd,
abstract = {{<p>This paper considers a single-stage make-to-stock production–inventory system under random demand and random yield, where defective units are reworked. We examine how to set cost-minimizing production/order quantities in such imperfect systems, which is challenging because a random yield implies an uncertain arrival time of outstanding units and the possibility of them crossing each other in the pipeline. To determine the order/production quantity in each period, we extend the unit-tracking/decomposition approach, taking into account the possibility of order-crossing, which is new to the literature and relevant to other planning problems. The extended unit-tracking/decomposition approach allows us to determine the optimal base-stock level and to formulate the exact and an approximate expression of the per-period cost of a base-stock policy. The same approach is also used to develop a state-dependent ordering policy. The numerical study reveals that our state-dependent policy can reduce inventory-related costs compared to the base-stock policy by up to 6% and compared to an existing approach from the literature by up to 4.5%. From a managerial perspective, the most interesting finding is that a high mean production yield does not necessarily lead to lower expected inventory-related costs. This counterintuitive finding, which can be observed for the most commonly used yield model, is driven by an increased probability that all the units in a batch are either of good or unacceptable quality.</p>}},
author = {{Berling, Peter and Sonntag, Danja R.}},
issn = {{1059-1478}},
keywords = {{base-stock policy; inventory control; random yield; rework; unit-tracking approach}},
language = {{eng}},
number = {{6}},
pages = {{2628--2645}},
publisher = {{Wiley-Blackwell}},
series = {{Production and Operations Management}},
title = {{Inventory control in production–inventory systems with random yield and rework : The unit-tracking approach}},
url = {{http://dx.doi.org/10.1111/poms.13706}},
doi = {{10.1111/poms.13706}},
volume = {{31}},
year = {{2022}},
}