677 / 2024-05-08 13:49:17

Optimizing Basestocks in Production-Inventory Systems with Stochastic Supply-Chain Disruptions

make-to-stock; basestock policy; stochastic demand; stochastic unit production time; stochastic transportation time; stochastic production line disruptions

Consider a make-to-stock firm that produces different finished goods and transports them to multiple warehouses. A basestock policy is used to manage production and  inventory. Demands, production times and transportation times are random variables. The production process consists of several parallel and identical production lines which experience stochastic supply-chain disruptions of random duration. Unfilled demands are backordered. Expected cost is equal to the total per-period, long-run, expected holding and backordering costs. Optimal basestocks are those that minimize expected cost. We demonstrate that the exact optimal basestocks are analytical intractable. We establish two closed-form approximations of optimal basestocks and via a simulation experiment determine that the approximations' optimality gap is less than 3%. We conduct sensitivity analyses of the approximations and identify various theoretical and managerial findings that may serve as guidelines regarding the appropriate optimal basestocks adjustments when there are changes in demands, production times, transportation times, and disruptions frequencies and durations.