OPTIMIZATION OF STOCHASTIC PRODUCTION-INVENTORY MODEL FOR DETERIORATING ITEMS IN A DEFINITE CYCLE USING HAMILTON-JACOBI-BELLMAN EQUATION

Background: Inventory control is essential for a manufacturer to achieve the desired profit in successful supply chain management. This paper deals with the production-inventory system under the decrease in production rate. The model includes three stages: before the decrease in production, after the decrease in production, and after a period of inventory shortage. Throughout the stages, the stochastic inventory model is always affected by random factors and the deterioration of inventory quality.

Method: The article uses the economic order quantity (EOQ) framework to evaluate costs in the production-inventory model. To optimize the manufacturer’s profit with the stochastic factor, Hamilton–Jacobi–Bellman (HJB) equation is presented to find the production rate to make the inventory model to guarantee its intended goals in a determined cycle.

Result: Analytical solutions are provided for optimization of the stochastic production-inventory model. Numerical experiments show that inventory level, production rate, and profit over time are based on the optimal initial value of the production rate.

Conclusion: The manufacturer’s profit comes from the stages of importing raw materials, processing and producing, storing and supplying items. Finding the initial value of the production rate can make the inventory level and production rate to ensure their desired value and get the target profit within a specified time.