Publication: Optimal threshold levels in stochastic fluid models via simulation-based optimization
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KU Authors
Co-Authors
Gurkan, Gul
Ozdemir, Ozge
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Abstract
A number of important problems in production and inventory control involve optimization of multiple threshold levels or hedging points. We address the problem of finding such levels in a stochastic system whose dynamics can be modelled using generalized semi-Markov processes (GSMP). The GSMP framework enables us to compute several performance measures and their sensitivities from a single simulation run for a general system with several states and fairly general state transitions. We then use a simulation-based optimization method, sample-path optimization, for finding optimal hedging points. We report numerical results for systems with more than twenty hedging points and service-level type probabilistic constraints. In these numerical studies, our method performed quite well on problems which are considered very difficult by current standards. Some applications falling into this framework include designing manufacturing flow controllers, using capacity options and subcontracting strategies, and coordinating production and marketing activities under demand uncertainty.
Source
Publisher
Springer
Subject
Automation, Control systems, Operations research, Management science, Mathematics, Applied mathematics
Citation
Has Part
Source
Discrete Event Dynamic Systems-Theory and Applications
Book Series Title
Edition
DOI
10.1007/s10626-006-0002-z