COPRODUCTION PROCESSES WITH RANDOM YIELDS IN THE SEMICONDUCTOR INDUSTRY

A wide variety of manufacturing operations can be characterized as co- production with substitutable demand. That is, there are many situatio ns in which the availability of two or more items are related, and bec ause of randomness in either supply or demand, it can be advantageous to substitute one of these items for another. Our research was motivat ed by the semiconductor industry, where chips are produced in large ba tches. Because of the presence of randomness in the process, individua l chips in a given batch can perform differently. Because some custome rs have stricter specifications than others, chips within the same bat ch can be classified and sold as different products according to their measurable performance. We model the production and inventory problem as a stochastic dynamic program in which the objective is to minimize the costs of meeting contractual obligations. After developing heuris tic methods of solving the problem in practice, we validate them again st a lower bound on the cost of an optimal solution to the dynamic pro gram.