(285c) Safety Stock Selection Using a Robust Inventory Control Policy

Within the traditional inventory management framework, a feedback policy for inventory restock must be determined to mitigate the impact of time varying product demand. In most cases this policy is designed to minimize inventory variations, which will reduce the required level of safety stock (also known as the average or target inventory level) and thus will reduce inventory holding costs.

It has recently been determined that the control theoretic approach of Back-off Operating Point (BOP) selection, [1, 2, 3], can be used to identify safety stock values nearly identical to those of traditional approaches, [4, 5]. However, in contrast to traditional approaches, the BOP selection scheme can be extended to a robust control policy framework, and thus account for parametric uncertainty within the inventory system model. In this paper we present the robust controller extension of the BOP selection scheme. The scheme will be illustrated by applying the procedure to the microelectronics fabrication line described in [6]. In particular, the uncertain parameters of production yield and throughput time are addressed explicitly by the robust controller selected by the BOP selection procedure.

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[6] Schwartz, J; W. Wang; D. Rivera, ?Optimal tuning of process control-based decision policies for inventory management in supply chains,? Automatica, Special Issue on Optimal Control Applications to Management Sciences, vol. 42, pp 1311-1320, 2006