Impacts of Advance Demand Information in Multi-class Production-inventory Systems

Demand information can easily be shared in advance with the use of the latest technologies in the supply chain. Advance demand information can be used to compensate demand uncertainty and decrease inventory costs. In order to benefit from advance demand information, it should be effectively integrated into the system. In this paper, we examine a production-inventory system with multiple classes of customers and advance orders. We consider the supplier’s production planning and order acceptance problems. By using stochastic dynamic programming, we propose optimal replenishment and admission control policies that highlight the advantages of advance demand information. We present numerical results that demonstrate the impacts of advance demand information on the optimal policies and on the optimal profit.