Managing Capacity and Inventory Jointly in Manufacturing Systems

  title={Managing Capacity and Inventory Jointly in Manufacturing Systems},
  author={James R. Bradley and Peter W. Glynn},
  journal={Manag. Sci.},
In this paper, we develop approximations that yield insight into the joint optimization of capacity and inventory,and how the optimal inventory policy varies with capacity investment in a single-product, single-station, make-to-stock manufacturing system in which inventory is managed through a base-stock policy. We allow for a correlated demand stream as we analyze our models in an asymptotic regime,in which the penalty and holding costs are small relative to the cost of capacity. Although our… 

Tables from this paper

Tactical capacity management under capacity flexibility in make-to-stock systems
A simple model is developed to represent a make-to-stock production environment with flexible capacity subject to periodic review under non-stationary stochastic demand and the solution to the single period problem and the general characteristics of the multi period problem are provided.
Managing capacity and inventory jointly for multi-server make-to-stock queues
Operational insights into the trade-offs involved in such joint management problems are provided, through various analysis based on the square-root rule as well as a comparison with analogous results for single-server make-to-stock queues.
A Brownian Approximation of a Production-Inventory System with a Manufacturer That Subcontracts
A Brownian approximation of the optimal control problem, assuming that the manufacturer uses a "dual base-stock" policy to control replenishment from the two sources and that her objective is to minimize average cost is constructed.
Optimal capacity allocation in a production–inventory system with base stock
The effect of capacity reallocation is analyzed and it is shown that a manufacturing system consisting of production stations with constant utilization rates, results in the lowest base stock level.
Tactical capacity management under capacity flexibility
This paper considers a make-to-stock production environment with flexible capacity subject to periodic review under non-stationary stochastic demand, where it allows for positive fixed costs both for initiating production and for acquiring external capacity.
Joint pricing and inventory control for a stochastic inventory system with Brownian motion demand
ABSTRACT In this article, we consider an infinite horizon, continuous-review, stochastic inventory system in which the cumulative customers’ demand is price dependent and is modeled as a Brownian
Optimal control of a dual service rate M/M/1 production-inventory model
Joint capacity, inventory, and demand allocation decisions in manufacturing systems
It is demonstrated numerically that the joint optimization of capacity, inventory, and demand allocation decisions has significant cost savings over a sequential decision and leads to a high utilization of the production facility under linear capacity costs, but relatively low utilization under concave costs.
Joint optimisation of capacity and safety stock allocation
It turns out that particularly for high utilisation levels, the algorithm can achieve significant improvements compared to the capacity allocation heuristic, and is applied to cases motivated by the semiconductor manufacturing process at IBM Systems.
Trade-off between capacity invested and inventory needed


Computing the Optimal Policy for Capacitated Inventory Models
We consider an infinite-horizon inventory model with finite production capacity and stochastic demands. Federgruen and Zipkin [2][3] showed that a base-stock policy is optimal; however, they did not
The Simultaneous Planning of Production, Capacity, and Inventory in Seasonal Demand Environments
A model that simultaneously plans capacity investment, inventory investment, and the production schedule using return on assets as the objective to maximize is developed and an algorithm is developed that optimizes a fractional objective function for a mixed-integer program.
Corrected Diffusion Approximations for a Multistage Production-Inventory System
A multistage inventory system with limited production capacity facing stochastic demands is analyzed and approximations to the key measures of interest are developed by simultaneously letting the mean demand approach the system's bottleneck capacity and letting the base-stock level for finished goods increase without bound.
Models for Design and Control of Stochastic, Multi-Item Batch Production Systems
This approach combines standard inventory and queueing submodels into classical optimization problems and optimize the approximate operating cost of a given facility over certain simple, plausible control policies.
Special products and uncertainty in production/inventory systems☆
Bounds and Asymptotics for Planning Critical Safety Stocks
B bounds and approximations for setting base-stock levels in production-inventory systems with limited production capacity are developed and a precise connection is made between a multistage system and an associated single-stage system consisting solely of the bottleneck facility.
Protective stocks in multi-stage production systems
SUMMARY Uncertainty in MRP systems does exist in several forms, variability in demand from period to period, uncertainty in the supply from stage to stage due to the variability in the yields from
Analysis of a Forecasting-Production-Inventory System with Stationary Demand
This work focuses on a modified base-stock policy incorporating forecast information and uses an approximate analysis rooted in heavy traffic theory and random walk theory to obtain a closed-form expression for the (forecast-corrected) base- stock level that minimizes the expected steady-state inventory holding and backorder costs.
A well-known characteristic of the EOQ model is that for the optimal order quantity, the average holding costs will equal the average ordering costs. This paper extends this result to a broad class