Production and inventory policies for an integrated manufacturing firm

The coordination of production and inventory decisions for raw materials, intermediate products and finished goods is important. We compare some decision rules for a ‘firm that uses a single raw material to manufacture n different parts which are then assembled into the final product. Demand for the final product is probabilistic and there are costs of holding inventory and of ordering, manufacture and assembly. These characteristics are an idealization of the problem faced by a manufacturer of scaffolds in which the major processes are the manufacture of different sheet metal parts and their assembly.We develop production rules that use system-wide information. We use simulation to evaluate the performance of these rules and compare system behaviour to that under production rules that are derived separately for each item and use only local information about that item's status.