We consider a production facility that produces items for which demand
occurs according to a Poisson process. The facility is assumed to det
eriorate while it is in operation, with an increasing failure rate. A
preventive maintenance overhaul of the facility is, however, assumed t
o restore it to its original condition. We consider the following cont
rol policy for operating the facility: as soon as the inventory level
is raised to a certain prespecified value, S, a preventive maintenance
operation is initiated. After the preventive maintenance operation, p
roduction resumes as soon as the inventory level drops down to or belo
w another prespecified value, s, and the facility continues to produce
items until the inventory level is raised back to S. If the facility
breaks down during operation, it is minimally repaired and put back in
to commission. Under a cost structure that includes a preventive maint
enance cost, a repair cost, a setup cost, a holding cost, and a backor
der cost, an expression for the expected cost per unit time is obtaine
d for a given policy. Some properties of the cost functions are develo
ped to characterize the optimal policy. On the basis of these properti
es, an efficient algorithm to find the optimal policy is presented.