Ordering Policies in an environment of Stochastic Yields and Substitutable Demands

In this paper we model production problems where yields are stochastic, demands are substitutable, and several items are jointly produced. We have formulated this problem as a profit maximizing convex program, and have studied two solution procedures. The first method solves finite horizon stochastic programs on a rolling horizon basis. We have developed a decomposition algorithm for solving the finite horizon problems. These are linear programs and our algorithm utilizes the "network-like" structure. The second method is a heuristic procedure that is based on the structure of the optimal policy for a two period problem. It parallels the decision rules used by managers in practice. The computational results suggest that the performance of this heuristic is comparable to that of the rolling horizon approach. *Sloan School of Management, Massachusetts Institute of Technology Cambridge, MA 02139 **Anderson Graduate School of Management, UCLA Los Angeles, CA 90024 ., s .._ ._ .............. _ ._ . _ J ORDERING POLICIES IN AN ENVIRONMENT OF STOCHASTIC YIEDAND SBSrUTABIE DMANDS G.R. Bitran and S. Dasu