A By-Product Production Process with an Alternative for a Two-Product Inventory System.

Abstract : This paper considers the optimal control of a production system which is composed of two distinct production processes, called type A and type B. These production processes are used to produce two different products called I and II. It is assumed that the demands for these products are sequences of continuous, nonnegative and independent radom variables with known distributions. Production type A is used to produce both products, but they are related as by-products of each other by a fixed set of production coefficients, while type B can only be used to produce product II. At the beginning of each period, the level of production of each production type must be determined, given the amounts of each product already in stock. The criterion used to make these decisions is based on the minimum expected discounted total cost over the finite horizon. Results presented show that the decision plane is partitioned into four distinct regions, and the boundaries between these regions are characterized in terms of a particular sequence of points which are independent of the on-hand stock levels each period. (Author)