Management Science and Financial Engineering

The Korean Operations Research and Management Science Society (한국경영과학회)
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The Effect of (Q, r) Policy in Production-Inventory Systems

  • Kim, Joon-Seok (Department of Business Administration, Sejong University) ;
  • Jung, Uk (Department of Management, Dongguk University)
  • Published : 2009.05.31
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Abstract

We examine the effectiveness of the conventional (Q, r) model in managing production-inventory systems with finite capacity, stochastic demand, and stochastic order processing times. We show that, for systems with finite production capacity, order replenishment lead times are highly sensitive to loading and order quantity. Consequently, the choice of optimal order quantity and optimal reorder point can vary significantly from those obtained under the usual assumption of a load-independent lead time. More importantly, we show that for a given (Q, r) policy the conventional model can grossly under or over-estimate the actual cost of the policy. In cases where a setup time is associated with placing a production order, we show that the optimal (Q, r) policy derived from the conventional model can, in fact, be infeasible.

Keywords

References

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