Optimal control policies for make-to-stock production systems with several production rates and demand classes

Abstract

We develop the optimal control policies for make-to-stock production systems under different operating conditions. First, a production system is considered with a single demand class and two production rates. With the assumptions of Poisson demands and exponential production times, the (S1, S2) control policy is the optimal one. The results of numerical study show that a significant cost saving can be achieved by employing an emergency production rate when needed. After that, the developed model is extended for considering N production rates and the optimal control policy is identified as well. Second, we consider a production system with N demand classes and two production rates for lost-sales case. It is found that the optimal control policy is a combination of (S1, S2) policy and the stock reservation policy. Finally, we study a production system with two demand classes and two production rates for a backorder case. The optimal control policy is shown to be characterized by three monotone curves.