Approximate Policies for Hybrid Production and Rework Systems with Stochastic Demand and Yield

Abstract

We consider a production inventory problem under periodic review with stochastic demand and stochastically proportional yield. Defective products (i.e. the yield loss) arising from the unreliable production process can be temporarily stored in an inventory and passed through a rework process. Rework is completely reliable and brings defective products up to the same quality level as new ones, so that they can be used for demand fulfilment. We focus on the application of linear heuristic policies similar to those emerging from MRP application, and develop simple expressions for the computation of policy parameters. Results of a numerical study indicate that the heuristic approach performs quite well.