Constrained Inventory Rules for Production Smoothing

Abstract

Production smoothing (or production planning) methods are used to decide on aggregate production levels for a factory, without specifying what individual products should be produced, or when, or how much. Inventory control of finished goods inventory makes these latter decisions, but does so for each product, independently, without regard for the aggregate effect on the factory. This paper discusses several (unsatisfactory) attempts to make these two sets of decisions consistent, and then presents several ways of making trigger and lot-size inventory decisions (production decisions for individual products) that aim at minimizing total inventory costs while yielding a desired level of aggregate factory production.