Working Paper Alfred P. Sloan School of Management Heavy Traffic Analysis of a Production- Distribution System Heavy Traffic Analysis of a Production- Distribution System Sep 2 1 1994 Ubbabies Heavy Traffic Analysis of a Production-distribution System

We consider an optimization problem for a multiclass queueing model of a decentralized production-distribution system: A single server can produce a variety of products, and completed units pass through an infinite server delay node on their way to a warehouse inventory. Each product has its own warehouse, demand for each product is satisfied by its associated inventory, and unsatisfied demand is backordered. Each warehouse operates independently under its own base stock policy: The initial inventory is set at a base stock level, and each unit of demand triggers an order with the server. The server processes the orders in a first-come first-served manner, and the optimization problem is to find the base stock level for each product to minimize the expected average inventory holding and backordering cost. A heavy traffic approximation of this problem yields an inventory process that possesses both diffusion and Gaussian components. Computational results are performed to cissess the accuracy of our analysis.