Integrated Production and Maintenance Policies in Produce-to-Stock Systems with Information Sharing

We study the optimal integrated production/inventory policy in a two-echelon supply chain with one manufacturer and one retailer. The manufacturer produces items in her production facility and keeps the Þnished goods in inventory. The manufacturer’s production facility deteriorates with usage and is subject to failure. Under the assumption that the manufacturer has on-line access to the retailer’s inventory information, we formulate the manufacturer’s integrated decisions on maintenance and production using a Markov Decision Process. The optimal dynamic policy is shown to have a rather complex structure which leads us to consider more implementable policies. We present the modiÞed echelon-stock policy as a substitute for the optimal policy, and develop exact models for evaluating the performance of this policy. A detailed numerical study demonstrates that the proposed policy performs extremely well. Finally, we present insights into the value of information when maintenance operation is and is not preemptable.