Inventory control in production–inventory systems with random yield and rework: The unit?tracking approach

This paper considers a single-stage make-to-stock production–inventory system under random demand and yield, where defective units are reworked. We examine how to set cost-minimizing production/order quantities in such imperfect systems, which is challenging because yield implies an uncertain arrival time of outstanding the possibility them crossing each other pipeline. To determine order/production quantity period, we extend unit-tracking/decomposition approach, taking into account order-crossing, new literature relevant planning problems. The extended approach allows us optimal base-stock level formulate exact approximate expression per-period cost policy. same also used develop state-dependent ordering numerical study reveals that our policy can reduce inventory-related costs compared by up 6% existing from 4.5%. From managerial perspective, most interesting finding high mean production does not necessarily lead lower expected costs. counterintuitive finding, be observed for commonly model, driven increased probability all batch either good or unacceptable quality.