Abstract
This paper considers the optimality of order aggregation in a single-item production/inventory problem with advance demand information and a restricted production capacity. The advance demand information is modeled by introducing a positive customer order lead time. The paper proves, when customer order lead times are less than a threshold value, it is allowed to aggregate the orders over time when establishing the optimal production decision. This implies the optimality of an order base-stock policy. It shows also that in case of linear inventory cost, the positive effect of advance demand information is equal to a cost reduction that is proportional to idle time and foreknowledge horizon. The results hold for the backlogging case as well as for the lost-sales case.
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License ( https://creativecommons.org/licenses/by-nc/2.0 ), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Wijngaard, J., Karaesmen, F. Advance demand information and a restricted production capacity: on the optimality of order base-stock policies. OR Spectrum 29, 643–660 (2007). https://doi.org/10.1007/s00291-006-0076-x
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DOI: https://doi.org/10.1007/s00291-006-0076-x