Two-Period Production Planning and Inventory Control Model with Demand Forecasts Updating

Abstract

We develop a stochastic two-period production/inventory planning model, which combines the use of information updating process with the flexibility of different delivery lead-times ordering strategy. Several decision variables are used: two orders are placed at the beginning of the first and second periods respectively and received immediately; another order is placed at the beginning of the first period and received with one period delay. The two different ordering/production modes, with zero and one period delivery lead-time, have different specific costs. The model permits to the retailer to return a certain amount of the available inventory to the supplier at the beginning of each period . Furthermore, a market information permits to update, between successive time periods, the random second period demand probability distribution. Via a dynamic programming approach, we exhibit the structure of the optimal policy, which is partially characterized by threshold levels. Then, via a numerical study, we exhibit the impact of the information quality of the proposed model.