Hedging policies for failure-prone manufacturing systems: optimality of JIT and bounds on buffer levels

Abstract

The authors consider multiple part-type single-machine manufacturing systems subject to failures. They provide necessary and sufficient conditions for the optimality of just-in-time (JIT) manufacturing, and further show that the necessary and sufficient conditions coincide when the backlog costs for all the parts are equal. In general, finding optimal hedging policies for multiple part-type problems is extremely difficult. They provide bounds on the optimal hedging points and also prove that, under an optimal hedging policy, the buffer levels will be upper bounded.

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