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The Optimality of Hedging Point Policies for Stochastic Two-Product Flexible Manufacturing Systems

Nanyang Business School, Nanyang Technological University, Singapore 639797
aschen{at}ntu.edu.sg

This paper studies the stochastic two-item, periodic review, single facility, flexible manufacturing systems, where stochasticity comes from random demands or/and unreliable production process. Based on a notion called µ-difference monotone introduced in this paper, we prove that the hedging point policy is optimal to the systems in general for both finite and infinite horizon cases of the problems. This result is (demand) distribution free and does not require strict convexity or even differentiability of the one-period expected cost function. A general characterization of the hedging point policy, together with monotone switching curves, is provided.

Subject classifications: inventory/production: multi-item, stochastic, policies, planning horizon; production/scheduling: flexible manufacturing, stochastic; dynamic program/optimal control: application, models.
History: Received April 2001; revision received February 2003; accepted March 2003.