Integrated hedging-point-based production/inventory control and dynamic lot sizing problem under stochastic demand

Research output: Chapter in book / Conference proceedingConference article published in proceeding or bookAcademic researchpeer-review


Production/inventory control is one of crucial elements in manufacturing systems for minimizing the inventory and production cost, especially in unreliable manufacturing systems. Determining the lot size significantly affects the continuous, make-to-stock batch manufacturing system in terms of the cost and production efficiency. In this paper, the two problems are considered in an integrated model in which a machine faces breakdowns. Both the optimal lot size and hedging point are determined at the same time when considering the production cost, inventory cost and setup cost. The stochastic demand is used instead of deterministic demand and it makes the problem even more complex and differs from previous work. Due to the stochastic nature of the problem, it is important to see how the lot size and hedging point change accordingly. The whole problem is formed as a stochastic dynamic programming model. We utilize the hedging point policy as a structure to control the production rate. A simulation-based method combined with Design of Experiment is introduced to solve the problem and to find the optimal combinations of lot size and hedging point. The results show that the integrated problem could be well solved under circumstances of stochastic demand and an unreliable manufacturing system. Figures and graphs are presented to illustrate the overall cost, the changes of inventory level, the optimal hedging point and the lot size.
Original languageEnglish
Title of host publicationOPT-i 2014 - 1st International Conference on Engineering and Applied Sciences Optimization, Proceedings
PublisherNational Technical University of Athens
Number of pages9
ISBN (Electronic)9789609999465
Publication statusPublished - 1 Jan 2014
Event1st International Conference on Engineering and Applied Sciences Optimization, OPT-i 2014 - Kos Island, Greece
Duration: 4 Jun 20146 Jun 2014


Conference1st International Conference on Engineering and Applied Sciences Optimization, OPT-i 2014
CityKos Island


  • Batch production
  • Hedging point
  • Lot size
  • Production/inventory control
  • Stochastic demand

ASJC Scopus subject areas

  • Computer Science Applications
  • Software
  • Engineering(all)

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