PRODUCTION PLANNING WITH STOCHASTIC SEASONAL DEMAND AND CAPACITATED PRODUCTION

We consider a production/inventory problem with stochastic seasonal de mand. A scarce resource limits production in each time period, and set up time is negligible. Linear and stationary costs are assessed for pr oduction, holding inventory, and stock-outs. The calculation of optima l solutions is difficult so heuristics are used. The heuristics used i n business practice are shown to cost an average of 30% above optimal policy costs. A superior heuristic is constructed utilizing an analyti c approximation for optimal policies that costs an average of 2% over optimal policy costs.