Dynamic Scheduling in a Make-to-Stock System: A Partial Characterization of Optimal Policies

We consider the problem of dynamically allocating production capacity between two products to minimize the average inventory and backorder costs per unit time in a make-to-stock single machine system. Using sample path comparisons and dynamic programming, we give a characterization of the optimal hedging point policy for a certain region of the state space. The characterization is simple enough to lead to easily implementable heuristics and provides a formal justiication of some of the earlier heuristics proposed.