OPTIMALITY OF ZERO-INVENTORY

POLICIES FOR UNRELIABLE

MANUFACTURING SYSTEMS


T. Biele ki and P. R. Kumar

O tober 15, 1999

Abstra t

We show that there are ranges of parameter values des ribing an unreliable manufa turing system for whi h zero-inventory poli ies are exa tly
optimal even when there is un ertainty in manufa turing apa ity. This
result may be initially surprising sin e it runs ounter to the argument
that inventories are buers against un ertainty and that therefore one
must strive to maintain a stri tly positive inventory as long as there is
any un ertainty. However, there is a deeper reason why this argument
does not hold, and why a zero-inventory poli y an be optimal even in the
presen e of un ertainty. This provable optimality reinfor es the ase for
zero-inventory poli ies, whi h is urrently made on the separate grounds
that it enfor es a healthy dis ipline on the entire manufa turing pro ess.

In re ent years, the goals of \zero-inventory" and \sto kless produ tion" have
attra ted mu h attention (Hall 1983). Su h poli ies enfor e a stri t dis ipline
on the entire manufa turing pro ess that has several bene ial onsequen es for
the overall produ tion system.
In this paper, we examine the question of whether there are any onditions
under whi h a zero-inventory poli y is a tually optimal. In this onne tion it
should be noted that it is sometimes argued that a zero-inventory poli y only
passes the osts from, say, the assembly line to the parts manufa turer, and
that, therefore, any advantages a ruing from enfor ing su h a poli y are only
side benets resulting from the greater dis ipline governing the system, and not
dire tly from the poli y itself. After all, the reasoning goes, positive inventories
are used as a buer against un ertainties in supply or demand, and so as long as
there is any un ertainty whatsoever in the system, one should strive to maintain
 (Please address all orresponden e to the se ond author below). Main College of Planning
and Statisti s, Warsaw, Poland.
y Department of Ele tri al and Computer Engineering and Coordinated S ien e Laboratory,
University of Illinois, 1101 W. Springeld Avenue, Urbana, Illinois 61801/USA.

a stri tly positive buer. Thus, zero inventory levels an only be optimal when
there is no un ertainty at all, and that is never possible !
In ontrast to this on lusion, we show in this paper that there are onditions under whi h a zero-inventory poli y is a tually provably optimal, even
when there is un ertainty, and that furthermore su h optimality of the zeroinventory poli y results whenever the system is designed to be su iently, but
not ne essarily perfe tly, e ient.
The model with respe t to whi h we exhibit these on lusions is that of a
simple failure prone manufa turing system produ ing a ommodity. The time
between failures is random and modeled as an exponentially distributed random
variable with mean 1=q1 , while the repair time is exponentially distributed with
mean 1=q0 . When fun tioning, the system an produ e at any rate up to a
maximum of r units/time; while broken down it annot produ e at all. At all
times the ommodity is being depleted at a demand rate of d units/time. The
total inventory an be negative, whi h just orresponds to a ba klog. Positive
inventories are assessed a ost at a rate of + dollars per unit ommodity per
unit time, while negative inventories are assessed a similar ost of . We seek
the optimal produ tion poli y for this system whi h minimizes the long run
average expe ted ost in urred per unit time,
ZT
1
[ + x+ (t) + x (t)dt
(1)
lim E
T !1

where x(t) = inventory level at time t (see below), x+ = max(0; x) is its positive
part, and x = max(0; x) its negative part. Let u(t) be the produ tion rate
at time t, then learly,
Zt
x(t) =
(u(s) d)ds
0

is the inventory at time t, and let I (t) = 1 or 0, respe tively, depending on

whether the system is fun tioning or not. Clearly, u(t) = 0 whenever I (t) =
0, and so we only need to determine the optimal produ tion rate when the
manufa turing system is up, i.e., in state I (t) = 1.
We show that there is a number z  , alled the optimal inventory level, toward
whi h the produ tion should be aimed, i.e.,

u(t) = 0 if x(t)z  ; I (t) = 1

(2)

= difx(t) = z ; I (t) = 1
(3)
= rifx(t)z  ; I (t) = 1:
(4)
Thus, if urrent inventory x(t) ex eeds z  , the system should produ e nothing; if
x(t) is less than the optimal level z , the system should produ e at the maximum
rate r; if the inventory level exa tly equals z  , then the system should produ e
exa tly enough to meet demand and thereby keep the inventory level at z  .
2

The quantity z  , the optimal inventory level, is therefore key to the whole
problem, and it is expli itly given by:

rq1 ( + + )
+ (r d)(q0 + q1 )
r dd
= +1 if
q1 q0

z  = 0 if

((q0 =dd)

 1 and r q d qd
1

(5)

rq ( + + )
1
log + 1
(q1 =(r d)))
(r d)(q0 + q1 )
otherwise.

(6)

(7)

Note that 1=q1 is the mean up-time and so r d=q1 is the maximum total
produ tion in a mean up-time. Similarly 1=q0 is the mean down-time and so
d=q0 is the total depletion in a mean down-time. So if r d=q1 < d=q0 , then the
system does not have the apa ity to meet demand even if it produ es at full
apa ity when up. Thus, z  = +1 under these onditions.
So onsider only the ase r d=q1 > d=q0 . Then we have the interesting
situation that the optimal inventory level z  is exa tly 0 whenever

rq1 ( + + )
+ (r d)(q0 + q1 )

 1:

This happens whenever q1 is redu ed enough or q0 in reased enough, i.e., whenever the system is made e ient. Note that it is not ne essary to have q1 = 0
or for q0 = +1 in order for a zero-inventory poli y to be optimal. This is
somewhat surprising be ause positive buers are usually maintained as a hedge
against future un ertainty (about manufa turing apa ity, in our ase), and so
one feels that a stri tly positive inventory should be maintained as long as there
is any un ertainty, i.e., as long as q0 6= +1 or q1 6= 0, in the system. However,
there is a deeper phenomenon at work, as we explain in Se tion I.
The above manufa turing system is a spe ial ase of the multi- ommodity,
multi-ma hine, failure-prone exible manufa turing system onsidered by Kimemia
and Gershwin (1983), whi h in fa t has been a key motivation for us. In Akella
and Kumar (1986), the authors have onsidered a similar problem but with a
dis ounted ost riterion,
Z1
E
e t[ + x+ (t) + x (t)dt
(8)
0

where > 0 is a dis ount fa tor. However, the average ost ase (1) onsidered
here admits a very ni e interpretation for the fundamental reason behind the
optimality of a zero-inventory poli y; see Se tion 1. The pre ise proof of optimality, though, whi h is ne essary, and whi h we provide in Se tions 2 and 3, is
more intri ate.
3

We hope that the expli it expression for the optimal inventory level z  , given
by (5-7), will nd use as a guideline. For example, the ondition

+ (r d)(q0 + q1 )
rq1 ( + + )

shows what range of values of + , , r, d, q0 and q1 one should strive for in

order to make the implementation of a zero-inventory poli y optimal. If one
annot a hieve su h a range of parameter values, then the formula
 

 
rq1 ( + + )
q1
q0

log +
z = 1
d r d
(r d)(q0 + q1 )
tells us the level of the positive inventory that one should aim for, and the
manner in whi h this level varies with the parameters.

1 WHY A ZERO-INVENTORY POLICY CAN

BE OPTIMAL
In this se tion we will provide an intuitive explanation for why a zero-inventory
poli y is optimal, ontrary to the expe tation that positive inventories should
be maintained whenever there is any supply un ertainty.
Consider poli ies of the form (2-4), i.e., poli ies for whi h there is a z su h
that

u(t) = r if x(t) < z;

= d if x(t) = z;
= 0 if x(t)z;
= 0 if I (t) = 0:

I (t) = 1
I (t) = 1
I (t) = 1

(9)
(10)
(11)
(12)

The only quantity to be hosen is z , and we shall optimize over its possible
values. (This is a onsiderable restri tion of the lass of all poli ies, and in fa t
the proof of Se tions II and III is needed pre isely be ause one does not know
a priori that other types of poli ies an be ruled out.)
We will assume that the ombined pro ess (x(t); I (t)) has a steady state
probability distribution,

P z (A; i) := tlim
!1 P rob(x(t) 2 A; I (t) = i)
when the poli y (9-12) is used. Dene

Qz (A) := P z (A; 0) + P z (A; 1):

4

The average inventory ost (1) orresponding to this poli y, whi h we denote
by J (z ), an then be omputed as the expe ted ost with respe t to the steady
state distribution, i.e., it an be written as,
Z0
Z1
z
J (z ) =
jxjQ (dx) +
+ xQz (dx):
(13)

We will shortly minimize J (z ) over z to obtain z  .

We laim rst that

P z ((z; 1); i) = 0 for i = 0; 1

P z (fz g; 1) =:  > 0:

(14a)
(14b)

Note from (11 and 12) that if the inventory level xz (0) starts with a value larger
than z , then it is depleted at rate d until it hits z . Thereafter (10 and 12) ensure
that it never again rises above z ; see Figure 1. Hen e, xz (t)  z for all t large

Figure 1: Comparison of inventory behavior under poli ies with z and z + ,

when xz+ (0) = xz (0) + .
enough, and so (14a) follows. To see (14b) whi h asserts that there is a stri tly
positive probability mass at z , note that whenever x(t) hits z with I (t) = 1, it
stays at z until I swit hes to 0. So x(t) does spend a positive fra tion of time
at exa tly the level z , whi h implies that the point z has positive probability
mass, giving (14b).
Lastly, let us make the reasonable assumption that ex ept for the mass
P z (fz g; 1), the distribution P z (dx; i) has a probability density fun tion pzi (x).
Hen e Qz (dx) also has a probability density fun tion q z (x), ex ept for the mass
Qz (fz g) at z .
5

The property (14b) is key to the optimality of a zero-inventory poli y. By

hoosing z = 0 one an ensure that with probability the system has zero inventory, and therefore with probability one is paying no inventory ost. Of ourse,
we must balan e against this the possibly extra ost in urred by hoosing z = 0.
If is large enough, then the advantages will outweigh the disadvantages and so
a zero inventory poli y with z = 0 is optimal. This is at heart the main reason
for optimality of zero inventory poli y.
To de ide when is large enough to make it advantageous to hoose z = 0, we
need to ompare osts with z = 0 and z 6= 0. For doing this it is helpful to note
that translating z merely translates the probability distribution P z , that is

P z (A; i) = P z+ (A + ; i) for all ;

(15)

where by the notation A + we mean the set A translated by , or

A + :=

fx : (x ) 2 Ag:

To see (15), suppose that fi g are the swit hing times of I (t), i.e.,

I (t) = 0 for 2n  t2n+1

= 1 for 2n+1  t2n+2 :

If fxz (t); I (t)g and fxz+ (t); I (t)g are the pro esses orresponding to the hoi es
of z and z + , with initial hoi e of

xz+ (0) = xz (0) + ;

then from (9-12) we will have

xz+ (t) = xz (t) + for all t  0:

Again, see Figure 1. Sin e the paths are translates of ea h other, so are the
stationary probability distributions.
We an now optimize J (z ) quite readily. From (15) it follows that moving
from a hoi e of 0 to a negative value of z merely shifts the distribution P 0
leftwards by z units (thereby resulting in P z ). From (14a) it follows that

J (z ) J (0) = jz j for z  0:

Hen e, the optimal z will never be negative.

Now ompare the advantage in going from a hoi e of 0 to a positive value
of z . There are three omponents; translating the probability distribution on
( 1; z ) to ( 1; 0) yields an advantage in ost of zQ0 ( 1; z ), the movement of the probability mass from 0 to z osts  + z , and translating the distribution over ( z; 0) to (0; z ) yields a dieren e of
Z0
[ jxj + (x + z )Q0 (dx):
z

So,

1; z ))

J (z ) J (0) = [ + z zQ0 ((
+

( + (x + z ) + x)Q0 (dx);

(16)

forz 0:
The derivative at 0 is

d
(J (z ) J (0))z=0 =  + Q0 ((
dz

1; 0)):

For a zero-inventory poli y to be optimal, it is ne essary that this be positive,

whi h happens when

 Q (( 1; 0));

(17)

i.e., the ost of the probability mass at 0 is large enough. Moreover, for z > 0,
(d=dz )[J (z ) J (0) an be omputed to be,

d
[J (z ) J (0)z0
dz
+
= 
(1 ) + ( + + )Q0 (( z; 0));

whi h is also positive when (17) holds. Hen e (17) is both ne essary and su ient for z = 0 to yield a minimum of J (z ).
The basi reason for the optimality of an exa tly zero inventory poli y should
now be intuitively lear.
Using Q0 (( 1; 0)) = 1 , we an rewrite (17) as

( + + )  :
(18)
Next, we need to ompute . This is done by determining pzi (
) and  in
steady state. (Re all that pzi (
) is the density fun tion of P z (dx; i) in ( 1; z )).
t
Let pz;t
i (
) and  denote the orresponding quantities at time t. Considering
the probabilities at time (t + h), for small h > 0, we have:
Z

z;t+h

p0

z;t+h

p1

(x)dx = (1

q0 h)

+q1 h
Z

(x)dx = q0 h

A+hd

(r

= (1

q1 h)
q1
7

d)h

p0 (y)dy

for z 62 A

t+h

pz;t
1 (y )dy + o(h)

z;t

A+hd

+(1

pz;t
0 (y )dy

h)t

(r

Z
z

d)h

pz;t
1 (y )dy + o(h);

z
(r

d)h

pz;t
1 (y )dy + o(h):

+h
t+h = t . Taking the limit as
In equilibrium we should have pz;t
 pz;t
i
i and 
h ! 0 in equilibrium, and pro eeding formally through,
Z
Z
z
pz0 (y + hd)dy
p0 (y)dy =
A
A+hd

Z 
dpz0 (y)
z
=
p0 (y) +
hd dy + o(h);

dy

we get the dierential equations

dpz0 (x)
=
q0 pz0 (x) + q1 pz1 (x)
dx
dpz (x)
(r d) 1
= q0 pz0 (x) q1 pz1 (x)
dx
(r d) z
p (z ):
 =
q1 1
( d)

Using the auxiliary ondition

Zz

q1

pz0 (x)dx =

q0 + q1

(19)
(20)
(21)

(22)

one an solve these dierential equations to get,

q1 (x z)
e
for x  z
q0 + q1
q1 d
pz1 (x) =
e(x z) forx  z
(q0 + q1 )(r d)
d
;
 =
q0 + q1
pz0 (x) =

(23)
(24)
(25)

where the onstant  is dened as,

 :=

q0
d

q1
:
r d

(26)

Re all that we have assumed,

 > 0;

(27)

(see 5 and 6).

By utilizing these omputations, it is easy to verify that (18) is equivalent
to the ondition

+ (r d)(q0 + q1 )
rq1 ( + + )
8

in (5). When this ondition is not satised, straightforward evaluation of the
minimum of (16) using (25)-(27) yields the minimizing value of z  presented in
(7).
We summarize below the omputed values for the optimal ost J (z  ):

q1 rd
when z  = 0;
q0 d q1 d)
!!
,
+ d
+
+
=
+
q0
q1
q0 + q1
d
r d


+
 log + (rqr 1 ( d)(+q +)q ) when z  > 0:
0
1

J (z  ) =

(q0 + q1 )(q0 r

2 The Veri ation Theorem

Let u =  (x; i) be a poli y. By this we mean that the inventory evolves as

dx(t)
=  (x(t)); I (t)) d
dt

(28)

where I (t) is the Markov hain denoting whether the system is up or down.
Some onditions are needed on the fun tion  for there to exist a solution
of the dierential equation when  (
; i) is dis ontinuous (as the optimal poli y
is). We will assume the following

(x; 0) = 0 and 0  (x; 1)  r;

(29a)

(
; 1) is measurable, and for every (;  ) 2 R2 with   0, there exists a unique
fun tion y (t; ;  ) whi h is absolutely ontinuous in t, ontinuous in (t; ;  ),
and whi h satises

y (t; ;  ) =  +
lim
t#

(t

)

Z


( (y (s; ;  ); 1)

d)ds

for t  ;

(29b)

(y (s; ;  ); 1)ds = (; 1);

(29 )

lim

T !1

E [x2 (T ) = 0:

(29d)

We shall say that a poli y is admissible if it satises (29a, 29b, 29 and stable if
it satises (29d).
The reason for imposing (29a) is lear. The ondition (29b) guarantees
a solution of the dierential equation (28) while still allowing dis ontinuous
fun tions  ; see Akella and Kumar where su ient onditions are given. The
ondition (29 ) rules out some pathologi al fun tions and allows the denition
9

of an innitesimal operator. Finally, (29d) denotes a stability property that we

want  to possess. Here and in what follows, E denotes the expe ted value
when a poli y  is used.
We now have the following theorem whi h gives su ient onditions of the
Dynami Programming type for a poli y to be optimal with respe t to the
average ost riterion. In what follows we use the notation, (x) := + x+ + x .
Suppose   is an admissible stable poli y, and there exist ontinuously dierentiable fun tions W (x; i) and a onstant J  su h that
Theorem.

dW (x; i)
d
dx
qi [W (x; i) W (x; 1 i) + (x) J  = 0
for i = 0; 1 and all x
dW (x; 1)
dW (x; 1)
= min [u d
[  (x; 1) d
0ur
dx
dx
2
jW (x; i)j  k1 x + k2 for some k1 ; k2 :
[  (x; i)

Then
lim

T !1

E

1
(x(t))dt = J   lim 1T !1 E
T

Z
0

(30a)
(30b)
(30 )

(x(t))dt

for all admissible stable  and all initial onditions x(0).

The proof uses the (main) Dynkin formula, see Karlin and Taylor
(1981). To ompute the innitesimal operator, let f (x; i) be ontinuously differentiable in x and vanishing outside a ompa t set. Then for an admissible 
we have

Proof:

E [f (x(h); I (h))jx(0) = x; I (0) = i

= P rob(1 jump of I in (0; h))E [f (x(h); I (h))j
x(0) = x; I (0) = i; 1 jump of I in (0; h)
+P rob(0 jumps of I in (0; h))E [f (x(h); I (h))j
x(0) = x; I (0) = i; 0 jumps of I in (0; h) + o(h)
Z

= qi h
f x +  (y; i)dy
0
0
Zh
ds
+
 (y; 1 i)dy)
h
s
Zh
+(1 qi h)f (x +
 (y; i)dy) + o(h);
where  := 

10

"

df (; i)
= qi f (x; 1 i)h + (1 qi h) f (x; i) +
d
+o(h) for somex    x + h:

 (yi ; i)dy

Using (29 ), we get

E [f (x(h); I (h))jx(0) = x; I (0) = i f (x; i)

h#0
h
df (x; i)
=
[ (x; i) d + qi [f (x; 1 i) f (x; i):
dx

lim

From Dynkin's Formula we have,

"Z 
T
df (x(t); I (t))

[ (x(t); I (t)) d
dx

+qI (t) [f (x(t); 1 I (t)) f (x(t); I (t)) dt
= E [f (x(T ); I (T ) f (x(0); I (0)):

E

Now we apply the above formula to W noting that sin e jx(t)j is bounded by
for 0  t  T we an modify W outside this range so that it
vanishes outside some ompa t set. So we have
"Z 
T
dW (x(t); I (t))
E
[ (x(t); I (t)) d

jx(0)j + (r + d)T

dx

+qI (t) [W (x(t); 1 I (t)) W (x(t); I (t))dt

= E [W (x(T ); I (T )) W (x(0); I (0)):
From (30a and 30b) it follows that,
ZT
E
(x(t))dt  T J  + W (x(0); I (0))
0

E [W (x(T ); I (T )):

Dividing by T , taking the limit and using (30 ) and (29d) to see that

E [W (x(T ); I (T ))
T
yields
lim 1T !1

E

RT
0

! 0;

(x(t))dt
T

A similar omputation with   yields equality.

11

 J :

We need to nd W (
;
) and J  whi h satisfy the theorem. For this we

take advantage of the fa t that the average ost an often be obtained as the
limit of the dis ounted ost problem (8), whi h has been solved in Akella and
Kumar. We ex lude the trivial ase (6) where (r d)=q1 < d=q0 and ompute
the limits J  := lim #0 W (x; i); W (x; i) := lim #0 [W (x; i) W (z  ; 1) and
 (x; i) := lim #0  (x; i), where W is the optimal dis ounted ost obtained in
Akella and Kumar and  is the orresponding optimal poli y. The results of
these omputations are summarized in Tables I and II.
Table 1: Computation Summary for Case I:

+ (r d)(q0 + q1 ) q1 r( + + )  0
J =

q1 rd

(q + q )(q r qo d q1 d)
 0 1 0
W (x; 1)
W (x) = W
(x; 0)
 
(q0 + q1 )
x2 11
=
2(q0 r q0 d q1 d)

 

r
x 0
(q0 r q0 d q1 d) 1

 

rd
0
for x  0
+
(q0 + q1 )(q0 r q0 d q1 d) 1
(q +q )x
 


rd(1 e 0d 1 )
+ 2 1
q1
x 1 +
=
q0
2d
(q0 r q0 d q1 d)(q0 + q1 )2
 
q1 r
x 1
(q0 + q1 )(q0 r q0 d q1 d) 1
 
rd
0
+
for x  0
(q0 + q1 )(q0 r q0 d q1 d) 1
 (x; i) = r if x0; i = 1
= d if x = 0; i = 1
= 0 otherwise.

In both Cases I and II it an be veried (the latter being mu h more tedious)

that ex ept possibly for the admissibility and stability of   , the given J  , W ,
and   satisfy (30a, 30b, and 30 ). Turning to the veri ation of admissibility
of   , the onditions (29a) and (29 ) pose no problem, while ondition (29b)
is proved to hold in Akella and Kumar. Therefore, we need only to prove the
stability of   , that (29d) holds; then   will be proved to be both admissible and
stable, and onsequently optimal through the use of the Veri ation Theorem.
12

3 Stability of Optimal Poli y

We intend to prove the stability of   , i.e., to show that
lim

T !1

E (x2 (T )) = 0:

(31)

This ondition essentially states that the inventory grows more slowly than the
square-root of time, and it is lear that any reasonable poli y that we wish
to implement will have to possess this property. Here, we need to prove this
stability property in order to invoke the su ient onditions for optimality given
in the Theorem of the pre eding se tion.
Just for larity, we fo us on the z  = 0 ase; the details are similar in the
ase of z  > 0.
Let fn g be the sequen e of stopping times at whi h the pro ess (x(t); I (t))
hits (0; 0), that is

0 := inf ft  0 : x(t) = 0; I (t) = 0g;

n+1 := inf ftn : x(t) = 0; I (t) = 0g;

(with inf  := +1). These form renewal

times for the pro ess (x; I ). Let

F (s) := P rob(n+1 n  s)

be the ommon probability distribution of the time between su essive renewals,

and let

N (t) := supfn : n  tg
be the number of renewals whi h have taken pla e prior to time t. The quantity

(t) := t N (t)

is the urrent life whi h denotes the elapsed time sin e the last renewal. Sin e
x(N (t) ) = 0 and the inventory annot deplete at a rate faster than d, we have
0  x(t)  (t)d
and so

x2 (t)

 (t)d :
2

Hen e to show (31), it su es to show that

lim

T !1

E (2 (T )) = 0:

(32)

We therefore need to examine the se ond moment of the urrent life random
variable (T ).
13

Fix l and onsider a typi al renewal period, whi h is the time interval
[l ; l+1 . Let

0 := l ( note that I (0 ) = 0)

m+1 := inf ft > m : I (t) 6= I (m )

(33)
(34)

be the su essive times at whi h I swit hes, and let

Ym := 2m

2m

and Zm := 2m

2m

(35)

be, respe tively, the lengths of times whi h I spends in states 0 and 1 before
a swit h o urs. Note that fYm g is a sequen e of independent and identi ally
exponentially distributed random variables with mean 1=q0 , while the fZm g are
independent and exponentially distributed with mean 1=q1 . When I = 0 the
inventory depletes at rate d; when I = 1 the inventory builds up at rate (r d)
(until the inventory returns to 0, whereupon it stays at 0). So
!
m
X
(r d)Zi dYi for 2m < l :
x(2m ) =
i=1

Hen e if

m
X

2m := min 2m : [(r
i=1

then

d)Zi

dYi  0 ;
)

l+1 l

m
X
= min 2m : [(r
i=1

d)Zi dYi > 0 + Zm+1 :

Sin e

r d d
 0;
q1
q0
the Law of Large Numbers shows that l+1 < +1 a.s. Hen e F (s) is a proper
E [(r d)Yi

dZi =

distribution.
In what follows, we will assume without loss of generality that 0 = 0. Let

GT (s) := P rob((T )  s)
be the probability distribution of the urrent life at time T . From renewal theory
(see Karlin and Tyalor, p. 193, 1975) we know that
ZT s
GT (s) = F (T )
[1 F (T y )dm(y )sT
= 1

s  T;
14

where

m(t) := E [N (t)
is the mean number of renewals. Hen e we may ompute the se ond moment of

(T ) as follows,
E [2 (T )
Z1
=

= T [1
2

s2 dGT (s)
F (T ) +

= T [1

F (T ) +

= T 2 [1

F (T ) +

= T 2 [1

F (T ) +

Z
Z

= T 2 [1 F (T )
ZT ZT y
+
2y
[1
0

s2 dGT (s)

2ydydGT (s)
ZT
2y
dGT (s)dy
0

2y [GT (T )

= T 2 [1 F (T )
ZT
+
(T z )2 [1
0

GT (y)dy

F (T

z )dm(z )dy

F (T

z )dm(z ):

(36)

We now intend to apply the Key Renewal Theorem (see Feller 1968) to obtain
the limit of (36) as T ! 1. To do so, we need to show that

F is not latti e.
lim T [1 F (T ) = 0:
T !1
The distribution fun tion F has nite mean.
The fun tion t2 [1 F (t) is dire tly Riemannintegrable:
2

(37a)
(37b)
(37 )
(37d)

In the lemma whi h follows we will prove all four properties. Then, upon
applying the Key Renewal Theorem to (36), we will have
Z
1 1 2
lim E [ 2 (T ) =
t [1 F (t)dt < +1:
T !1

So (32), and the stability property (31) will follow readily. To omplete this
argument, we thus need the following lemma.
Lemma. The properties (37a-37d) hold.
15

Proof:

We will prove two fa ts whi h are su ient for the lemma.

F (t) is ontinuous:

(38a)

There exists k and > 0 su h that

F (t)

 t k
3+

for all large t:

(38b)

Clearly (37a) follows from (38a); (37b) follows from (38b); and (37 )
R follows from
(38b) through the fa t that the mean of F an be omputed as 01 [1 F (t)dt.
Finally, (37a) shows that t2 [1 F (t) is Riemann integrable over every nite
interval, and (38b) is then a su ient ondition for dire t Riemann integrability
(see Feller).
To prove both (38a) and (38b), let l := 0 and dene fm ; Ym ; Zm g as in
(35). Let x_ (t) = d for 2m  t2m+1 and x_ (t) = r d for 2m 1  t2m ,
whi h are, respe tively, the intervals in whi h I (t) = 0 and I (t) = 1.
For a  0, dene

F (t; a) := P rob(x(s)  a for some 0 < s  t)

be the probability distribution of the stopping time when x rst rises to a level

a. Clearly,

a
;
r d
sin e x annot rise more rapidly than at rate (r d). By onditioning on 1
and 2 we get the renewal equation
F (t; a) = 0 for t 

F (t; a) =


+

rt dt a=r

Z1

q0 e

a+1 d=r d
Z rt dt a=r
0

q0 1 d

q1 e

q1 (2 1 ) d(

q0 e

q0 1 d

(a+1 d)=(r

1 )

d)


qe q  
F (t  ; a +  d +  r  r)d(
1

1( 2

1)

1 ):

(39)

Let the right hand side above be dened as (HF )(t; a), i.e., the a tion of an
operator H a ting on fun tions F (x; y ) with x  t. Clearly,
sup j(Hf )(x; w)

 [1 e

q0 t sup

x t
w

jf (x; w) g(x; w)j;

16

xtw

(Hg )(x; w)j

and is therefore a ontra tion with respe t to the sup norm. Moreover, H preserves ontinuity and so the unique solution F of (39) is ontinuous. Noting that
F (t) is the onvolution of F (t; 0), with a mean 1=q1 exponential distribution,
we have proved (38a).
To prove (38b), note that by the Prin iple of Large Deviations (Varadhan
1982) the quantity
 n 

1 X
1 

Y
1 P 

 n i=1 i q0 
 n 
!

1 X
1 

Z
and 

 n i=1 i q1 
de reases exponentially in n. This implies that


n
X
1
1
+ ++
(Yi + Zi )  n
1 P

q0

i=1

q1

n
X

((r d)Zi dYi )

and
i=1





 n (r d) 1  d 1 +

q1

q0

also de reases exponentially in n. Sin e

r d d
> ;
q1
q0
there exist , > 0 so that

1
(r d)

q1

q0

+ > 0:

With su h a hoi e we see that



n
X
1
1
+ ++
(Yi + Zi )  n
1 P
q0 q1
i=1
!
n
X
((r d)Zi dYi ) > 0 ;
and
i=1

de reases exponentially in n. This implies that so does


 

1
1
1 F n
+ ++
;

q0

and therefore also [1

q1

F (n), proving (38b).

17

4 CONCLUDING REMARKS
We have shown that zero-inventory poli ies an be optimal even when there is
un ertainty in manufa turing systems. This adds support to the use of su h
poli ies, whi h are urrently the fo us of mu h attention due to the greater
dis ipline that they enfor e on the manufa turing system.
The parti ular problem for whi h we have obtained the solution is somewhat
restri tive. It would be useful to relax several of the features. For example, the
demand rate, whi h is onsidered a onstant here, may be time-varying and
featuring linear growth as well as seasonal and y li al omponents. It is also
important to take into a ount the hange-over ost when swit hing produ tion
rates. Also, it would be useful to onsider more general bat h manufa turing
problems.1
In a dierent dire tion, it is of mu h interest to examine the omplex model
of a multi-ma hine, multi-produ t exible manufa turing system featured in
Kimemia and Gershwin (1983) to show that there are ranges of mean times between failures and mean repair times under whi h zero-inventory poli ies remain
optimal.

ACKNOWLEDGEMENTS
The authors are grateful to the editor, asso iate editor and the two referees for a
number of onstru tive suggestions in luding those in Se tion ??. The resear h
of the se ond author has been supported by the U.S. Army Resear h O e
under Contra t No. DAAG-29-85-K0094, and by the Joint Servi es Ele troni s
Program under Contra t No. NOOO14-85-C0149. The work of the rst author
was supported by a Fulbright S holarship while he was visiting the University
of Illinois.

REFERENCES
Akella, R., and P. R. Kumar. 1986. Optimal Control of Produ tion Rate
in a Failure Prone Manufa turing System. IEEE Trans. on Automati
Control, AC-31, 2, 116-126.
Feller, W. 1968. An Introdu tion to Probability
Vol. II, John Wiley & Sons, New York.

Theory and Its Appli ations,

Zero Inventories, Dow Jones-Irwin Press. Homewood, Ill.

Karlin, S., and H. M. Taylor. 1975. A First Course in Sto hasti Pro esses,

Hall, R. W. 1983.

A ademi Press, New York.

1 The

authors are grateful to a reviewer for these suggestions.

18

Karlin, S., and H. M. Taylor. 1981.

A ademi Press, New York.

A Se ond Course in Sto hasti Pro esses,

Kimemia, J. G., and S. B. Gershwin. 1983. An Algorithm for the Computer

Control of Produ tion in Flexible Manufa turing Systems. IEE Transa tions, 15, 353{362.
Varadhan, S. R. S. 1982.
Press, Philadelphia.

Large Deviations and Appli ations, SIAM-CBMS

19

Table 2: Computation Summary for Case II: + (r d)(q0 + q1 ) q1 r( + + )  0

J =
W (x) =
=

=
 

+ d
0
for x  z 
q1 (q0 + q1 ) 1
where

A1 =

q1
q1
r d r d
q0 q0
d
d

; A2 =

rq1 ( + + )
+
+ d
+ q0

q1 log[ +
q0 + q 1 ( d r d )
(r d)(q0 + q1 )


W (x; 1)
W (x; 0)
1 Am 1 xm !
1 An 1 xn ! 
1 An 1 ( z  )n ! X
X
+ ( A1 z) X
+
1
1
1
b1
e

n
!
m
!
q
n!
1
m=1
n=1
n=1
!
!



 +
1 An 2 xn
1 An 2 ( z )n
X
X
+

0
1
1
+

b1 +
b1
A1 1 +
n
!
n
!
q
q
1
n=2
n=2
!
 
1 An 2 (x z  )n 
X
+
1
+ b1
A1 01
n!
q1
n=2
 
 +

+
(x z )
d
0
for 0  z 
q1
q1 (q0 + q1 ) 1
1 An 1 (x z )n !  
1 An 2 (x z  )n !
X
+ X
0
2
2
+
b2

1
n
!
q
n
!
1
n=1
n=2

q1
qd0
d

q1
d
q0
d

; b1 =

r d
1

; b2 =

and

z =

( qd0

rq1 ( + + )
:
q1
+ (r d)(q0 + q1 )
r d)
 (x; i) = rifxz  ; i = 1
= difx = z  ; i = 1
= 0 otherwise:
log[

20

1
d
1
d