OPTIMAL PRODUCTION POLICIES FOR MULTISTAGE SYSTEMS WITH SETUP COSTS AND UNCERTAIN CAPACITIES

The increased complexity of modern manufacturing has led to uncertaint ies in production processes. Factors such as unplanned machine mainten ance, tool unavailability, and complex process adjustments make it dif ficult to maintain a predictable level of output. To be effective, an appropriate production model must incorporate these uncertainties into the representation of the production process. This paper considers a one-time production of an application-specific product which must foll ow a fixed routing through the manufacturing system. The flow of items can be modeled as a multi-stage serial production line. The productiv e capacity is uncertain at each stage and the decision to produce at a ny stage incurs a significant setup cost. Semifinished products have l ittle value and inability to satisfy the demand incurs a penalty for e ach unit of unmet demand. We show that the optimal production policy f or this system can be characterized by two critical numbers, which can be computed apriori based on the cost parameters and distributional i nformation for all downstream stages. Sensitivity of the critical numb ers is also explored.