On the \((t,S_ j)\) policy in an integrated production/inventory model with time-proportional demand (Q1310706)

The authors study an inventory model where raw materials are used to produce finished inventory and the goal is to minimize total costs over a fixed time interval. There are set-up and linear holding costs for the finished item, linear holding and ordering costs for the raw materials and no backlogging, and demand is time proportional. Two types of policies are compared. Primary attention is given to a \((t, S_ j)\) ordering policy for the end product, where at every equal and fixed scheduling cycled, \(t\), a variable production quantity \(S_ j\) is produced during the \(j\)th cycle. This is compared with an \((s, Q)\) policy, where a constant batch size, \(Q\), is produced whenever inventory drops below the reorder point, \(s\). A heuristic algorithm is developed for \((t, S)\) policies. Some examples are worked out which show that a \((t, S_ j)\) need not always outperform on \((s, Q)\) policy.