Analysis of a Single Stage Production/Inventory System with Advance Demand Information(<Special English Issue>Industrial Management)

Abstract

In this study we consider a single stage production-inventory system with a single product and continuous review. Information on demand is obtained in advance and it is referred to as advance demand information (ADI). Demand follows a Poisson arrival process and its arrival rate depends on demand lead time, which is the arrival time interval between demand information and the corresponding demand. The processing time follows an exponential distribution. A holding cost is incurred for finished products and a backlog cost occurs if demand is not satisfied. When a finished product is delivered to the customer, the manufacturer receives a reward. We derive the optimal release lead time and base stock level which maximize the total expected average profit which the manufacturer receives. In numerical examples, we investigate a relation between demand lead time and the total expected average profit under the optimal release lead time and base stock level.