Multi-item production planning with stochastic demand: A ranking-based solution

This paper presents a deterministic nonlinear program in rolling-schedule form for multi-item production planning with uncertain demand and a capacity constraint. In the one-period case, a ranking-based cutoff policy is shown to be optimal. In the multi-period case with scarce capacity, a critical managerial choice is whether to produce quantities meeting mean levels of demand for less important products in immediate periods or to build up safety stocks for more important products in future periods. We address this question by formulating a two-period model and solve it using a multi-component algorithm. Numerical studies are also conducted to gain insights into capacity sharing with regard to product lifecycles and cost differences.