Stochastic Comparisons in Production Yield Management

Diwakar Gupta · William L. Cooper

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Supply Chain and Inventory Management Management and Optimization Techniques Scheduling and Optimization Algorithms

Abstract

Manufacturing firms routinely commit resources to increase yield rates through product- and process-improvement initiatives. Champions of such yield-improvement projects may assume that stochastically larger yield rates are beneficial. In this note, we show that this need not hold, even when the contingent production lot sizes are chosen optimally. We employ stochastic comparison techniques to show that a yield rate that is smaller in the convex order ensures higher expected profit, and we provide a distribution-free bound on the size of increase in expected profit. We also identify properties of yield-rate distributions that do make stochastically larger yield rates beneficial.

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References

1995Lot Sizing with Random Yields: A Review 1993Diversification Under Supply Uncertainty 1990The Structure of Periodic Review Policies in the Presence of Random Yield 1980Optimal inventory policies when stockouts result from defective products 1994The Effect of Leadtime Uncertainty in a Simple Stochastic Inventory Model 1992On the Effect of Demand Randomness on Inventories and Costs 1999Myopic Heuristics for the Random Yield Problem 1990Yield randomness, cost tradeoffs, and diversification in the EOQ model

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