The value of information used in inventory control of a make-to-order inventory-production system

This paper studies a make-to-order inventory-production system consisting of a warehouse and a workshop. The concept of information level as the detail available on the number of unfilled demands at the workshop is introduced. The focal point is the value of the information used in inventory control in the warehouse. Dynamic programming is used to develop an algorithm for computing the optimal replenishment policy and the average total inventory cost per product. Numerical analysis is carried out and the results show that information used in inventory control can reduce the total inventory cost significantly. It is shown that the classical (Q,R) policy may not perform well if information about the number of demands is partially or fully available.