Integrated Production and Maintenance Policies in Produce-to-Stock Systems with Information Sharing

We study the optimal integrated production/inventory policy in a two-echelon supply chain with one manufacturer and one retailer. The manufacturer produces items in her production facility and keeps the Þnished goods in inventory. The manufacturers production facility de-teriorates with usage and is subject to failure. Under the assumption that the manufacturer has on-line access to the retailers inventory information, we formulate the manufacturers inte-grated decisions on maintenance and production using a Markov Decision Process. The optimal dynamic policy is shown to have a rather complex structure which leads us to consider more implementable policies. We present the modiÞed echelon-stock policy as a substitute for the optimal policy, and develop exact models for evaluating the performance of this policy. A de-tailed numerical study demonstrates that the proposed policy performs extremely well. Finally, we present insights into the value of information when maintenance operation is and is not preemptable