Revenue management in single-stage CONWIP production systems

Abstract

We study a joint admission/inventory control problem for a manufacturing system producing one product to meet random demand. The system employs a constant work- in-process policy (CONWIP) whereby the total inventory of raw material and finished items is kept constant, and accepts orders only as long as the backlog is below a certain level. The objective is to determine the CONWIP and backlog levels that maximize the mean profit rate of the system. The system is modelled as a single server with a finite queue. It turns out that the mean profit rate is either concave or decreasing in one control parameter and also decreasing for large values of the other control parameter. A simple algorithm is developed which tracks down the globally optimum design in finite time. Numerical results show that the joint admission/inventory control policy achieves higher profit than other production control policies that have been examined in the literature.

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