Joint inventory and production decisions with supply quality and demand uncertainty

The authors consider a manufacturing facility with one critical raw material and one or more finished products whose demand has to be met. It is assumed that the demands for finished goods and the arrival process of raw material are stochastic. The authors calculate simultaneously the production quantity of finished goods and the order quantity of raw material which minimize the total expected cost subject to capacity and release level constraints. They show that major savings are obtained with respect to traditional models. The authors also evaluate the reliability of supplies of raw materials