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Integrated approach for optimizing service level and reproduction point under stochastic demand

An integrated model for studying demand uncertainty in the production-inventory problem is proposed. To realize the integrative decision of service level and reproduction point, the service level of a production-inventory system is defined as the probability of satisfying product demand in each period. Inventory variation in stochastic demand is analyzed, and the average inventory in planning periods is invited into the decision model. The planning output in every period is stochastic variables having the same distributions with the production demands. The approach is demonstrated in case of a Chinese automobile company. Sensitivity analysis shows the significant influence of production cycle and standard deviation on optimal reproduction point and the expected profit