Production Scheduling for Apparel Manufacturing Systems*

Loo Hay Lee, F. H. Abernathy and Y.C. Ho

(will be appeared in Production Planning & Control)

Abstract
In this paper, we model an apparel manufacturing system characterized by the co-existence of the two
production lines, i.e., traditional, long lead time production line and flexible, short lead time production
line. Our goal is to find strategies which decide : (1) the fraction of the total production capacity to be
allocated to each individual line, and (2) the production schedules so as to maximize to overall profits. In
this problem, searching for the best solution is prohibited in view of the tremendous computing budget
involved. Using Ordinal Optimization ideas, we obtained very encouraging results not only have we
achieved a high proportion of "good enough" designs but also tight profit margins compared to a precalculated upper bound. There is also a saving of at least 1/2000 of the computation time.

Key Words: production scheduling, ordinal optimization, goal softening

*The work reported in this paper is supported in part by NSF grants EEC-94-02384, EID-92-12122, ARO
contracts DAAl-03-92-G-0115, DAAH-04-95-0148, AFOSR contract F49620-95-1, and Alfred P. Sloan
Foundation grant

1. Introduction
In the past twenty years, technological advancements, international competitions and market dynamics
have brought a major impact to the North American apparel manufacturing industry. The conventional
analysis of apparel industry predicts that the apparel industry will collapse rapidly and migrate to nation
with low labor cost. Although apparel industries still exist in the United States nowadays, intense
competition encourages management to develop new production and supply methodologies in order to
remain competitive (Abernathy 1995). One key issue involves the allocation of scarce production resources
over competing demands, which is a typical problem in dealing with many complex man-made systems
(technically known as Discrete Event Dynamic Systems (DEDS)) (Cassandras 1993) for which
manufacturing systems are typical examples.
In this paper, we will describe an apparel manufacturing scheduling problem, which is depicted in figure 1.
Production
Lines

Production
Schedules

Quick Line
Production
Regular Line
Production
Production
Information

Central Distribution
Center

Inventory
Information

Retailer

Sales
Information

Production
Management

Information Flow
Material Flow

Figure 1. Material and information flow chart of apparel manufacturing systems.

There are two different types of production lines: quick lines and regular lines. In a regular production line,
works flows from worker to worker in bundles with work buffers between each workstation. The work-inprocess (WIP) in each buffer is so large that it takes 20 to 25 days for a garment to pass through all
operations, even though only 10 to 20 minutes of direct labor content is actually required to assemble the
garment. Therefore this kind of lines has a long lead time, which is defined as the receipt of the product

authorization to the time the products are shipped to the central distribution center. In a quick line, a small
group of workers are cross-trained to perform several sewing operations. The group of workers performs
all of the sewing assembly operations on the apparel item. Operators move from one workstation to another
thereby minimizing the WIP in the production line. The cycle time in the quick line is less than the cycle
time in the regular line; however, since an operator is generally less productive, on average, at several
operations than they are at a single operation, the costs of quick line are higher. The quick line has been
adopted by a number of firms seeking to increase speed and flexibility of their manufacturing systems.
When apparel items are assembled under either production system, they are generally shipped to a central
distribution center where orders from retailer are filled.
Retailer's weekly demands are generally specific for each of their stores and specific for each item of
apparel. Retail items are almost always specified by Stock Keeping Unit (SKU) which is a particular style,
fabric, and size of an apparel item. A typical jeans manufacturer may make 10,000 to 30,000 distinct SKUs
of jeans in a year. In a given season of the year, the number of SKUs manufactured may still be as high as
10,000. Many apparel manufacturers offer rapid replenishment to retailers in a collection which may be as
large as several hundred SKUs for a given apparel type.
In order to model the demand of retailers on apparel manufacturers, we will allow seasonal variation (e.g.
high season sales on both Father's day and Christmas for shirt market). Random variations in the actual
demand will account for weekly or daily fluctuations.
The production management team is responsible for making decisions on how to manage the future
production in different production lines in order to optimally supply a retail demand. In practice, when they
make a decision, certain criteria must be considered. First, finished goods inventory is expensive to be
maintained and should be no higher than necessary to meet demand. Second, satisfying customer demands
is an important strategic requirement. Failing to do so can result not only in lost profits due to reduced
sales, but also may put a manufacturer in danger of losing future market share.
The goal of the production management team is to determine (1) the fraction of the total production
capacity, , to be allocated to each production line; and (2) the scheduling strategy, , that decides the
production schedules so as to maximize the overall manufacturing profits.

A similar problem has been addressed by Tang (1994), but he only manages to solve the problem of only 9
different products without seasonal effects. In this paper, we target on solving a more practical problem,
i.e., more than 10,000 different products with seasonal trend.
The paper is organized as follow. A formal description will be presented in section 2. In section 3, we will
introduce a new optimization concept, and show how it on solving this problem. Then, in section 4, some
experiments and case studies were. Finally we make a conclusion in section 5.
2 Problem Formulation
The goal of this problem is to find , the capacity ratio of quick line to the total capacity and , the
scheduling strategy, so as to maximize the manufacturing profits, which are defined as total revenue less
material costs, cut, make and trim costs (CMT cost), inventory and WIP holding costs, and shipping costs.
The scheduling strategy is the mapping from the information set to weekly production schedules, or in
other words, it generates the weekly production schedules after collecting all the information (past
production schedules, inventory and demand information). In the following sections, we will describe the
model in details.
2.1 Demand Models
The demand is weekly and there is no back-ordering. In this paper, we assume that demand of SKU i at
time t, di(t) is a truncated Gaussian random variable with mean i(t), and standard deviation i(t), i.e.,
xi(t) = N(i(t), i(t))
di(t) = [xi(t)]

(1)

If we neglect the truncated effect, average demand of SKU i at time t is roughly equal to i(t).
Coefficient of variation of SKU i, Cvi(t), is defined as standard deviation divided by mean, i.e.,

Cvi (t ) =

i (t )
i (t )

(2)

In this paper, we assume that the coefficient of variation, Cvi(t), is a constant, and we will use Cvi from
now on.
The following are the definitions of several demand models.

Seasonal Sine Demand

Sine function can be used to model seasonal effects of the average demand, i.e., i(t) = Ai +
Bisin(2t/T), where T is the period of the seasonal effect, and Ai, Bi are the amplitudes of the function,
and Ai > Bi. For shirt manufacturers, the period, T is half year; there are peak sale seasons at Father's
day and Christmas. When we use sine function to model the average demand, it means that the
changes of the average demand are very smooth.

Seasonal- Impulse demand

In practice, the seasonal demand can also be modeled by a two-level demand function, which is called
impulse demand. This is used to describe the following scenario: Peak demands are often introduced
by promotions or special holidays or both. Hence, a sudden jump from low sales to high sales is often
observed at the beginning of a peak sales period. The peak sales are often planned to be roughly
equally spaced along a year and last for a short time (several weeks) compared to the regular selling
period.

2.2 Production Facilities

There are two different kinds of production lines, quick lines and regular lines; the lead times of which are
denoted respectively by L1 and L2. Both L1 and L2 are assumed to be known and constant, and by definition,
L2 > L1.
The total production capacity is generally limited by the availability of resources such as equipment and
available labor. In this problem, we assume the total capacity CP is equal to the yearly average demand
over all SKUs. Usually regular working day is 5 days a week and we allow one day overtime, and
therefore,
Maximum Capacity = CPmax = 1.2 CP

(3)

As for the minimum capacity, it is clear that it should be at least greater than zero, but in most situations, it
cannot vary greatly from week to week. A reasonable assumption is we have to work at least 4 days a
week. Therefore,
Minimum capacity limit = CPmin = 0.8 CP

(4)

The production schedules of each week should be chosen within these limits
Let ui1(t) be the amount of SKU i to be scheduled on the quick line at time t
and ui2(t) be the amount of SKU i to be scheduled on the regular line at time t

u j min u ij (t ) u j max

for j = 1, 2

(5)

i =1

where u1max = CPmax , u1min = CPmin,

u2max = (1-) CPmax , and u2min = (1-) CPmin
2.3 Inventory Dynamic
The model assumes that retail demand is replenished from the manufacturer's central distribution center. To
reduce the complexity of the problem, we do not attempt to explicitly investigate the inventory
replenishment policies at the retail stores. Alternatively, we specify the lead time of a production line to
include the actual production lead time and the time from the factory to the distribution center, and use the
term "inventory" to mean the inventories of the distribution center. We assume an immediate weekly
replenishment from the distribution center to each store. Let
Ii(t) : the total inventory of SKU i at time t;
Wi(t) : the total work-in-process (WIP) inventory of SKU i at time t;
Using the above notation, the inventory dynamics can be described as follows:

I i (t + 1) = [ I i (t ) d i (t )] + + u ij (t L j + 1)

i = 1, ..., M

(6)

j =1

Here we assume that delivery of finished apparel goods from the production line will arrive at the end of a
week while demand will happen in the middle of the week.
As for the WIP, it is defined as

Wi (t ) =

ij
j =1 k =t L j +1

(k )

(7)

2.4 Cost Matrix

CI :

Inventory & WIP holding costs

Cm :

Material costs

CLj :

Production costs (including the shipping cost) for line j

PS :

Sale price of the product

Here, we assume that the inventory holding cost to be equal to the WIP holding cost, and the sale prices of
different SKUs of the same product type are the same.

2.5 Problem Formulation

Given the allocation of total production capacity between quick line and regular line in terms of , a
scheduling policy is a sequence of decision functions which, at each time instant, determines how many
of each SKU should be produced by each production line. Formally speaking, it is a function which maps
from the information space to a control space, i.e., u(t) = (z(t)), where z(t) is the information that contains
current inventory level, WIP level and demand distribution, and u(t) is the vector of the production
schedules uij(t). For a given and , Jtotal(,) denotes the total manufacturing profits gained from
time t = 1 to time t = , which is calculated as follows. The total profit is equal to total revenues minus
the material costs, production costs and inventory holding costs.
M

Jtotal(,) =

min( I i (t ), d i (t ))

i =1 t =1
M

C I I i (t )
i =1 t =1

C
i =1 t =1 j =1

u ij (t )

C
i =1 t =1 j =1

Lj

u ij (t )

C W (t )
I

(8)

i =1 t =1

The average weekly manufacturing profit, J(,) is given by Jtotal(,) divided by , i.e.,
J(,) =

1
Jtotal(,)

(9)

Since the demand is random, our problem is then to find and in order to maximize the expected total
manufacturing profits, i.e.

Max E[ J ( , )]

, [ 0 ,1]

(P1)

subject to constraints (1), (5), (6) and (7)

where is the collection of all possible scheduling policies .

2.6 Challenges of the Problems

There exists four nearly insurmountable challenges in this problem.

First, in the apparel manufacturing system, different sizes, colors, or fashion of shirts are considered as
different stock-keeping units (SKUs). There may be over ten thousand different SKUs in the system.
The demand of each SKU varies weekly and exhibits seasonal trends.

Second, since the exact demand is not known in advance, in order to estimate precisely the expected
profit of each strategy, one needs to perform numerous time-consuming and expensive Monte-Carlo
simulations.

Third, the number of applicable strategies is equal to the size of the possible production schedules
raised to the power of the size of the information space. It is clear that this can be very large even for a
moderately-sized problem.

Fourth, since the neighborhood structure in the strategy space is not known and the performance value
function cannot be explicitly represented in terms of strategy, therefore the calculus and gradient
decent algorithm cannot be applied.

Because of these difficulties, to get the optimal solution to this problem, brute-force simulation, or large
state-space dynamic programming is unavoidable. Therefore, in practice it is impossible for us to find the
optimal scheduling strategy for the system.

3. Our Approach Ordinal Optimization

As mentioned in the previous section, searching for the best solution is prohibitive by experience in view
of the tremendous computing budget involved. However, if we do not insist in finding the optimal
solution, i.e., we soften our goal by accepting any good enough solution with high probability, the
problem will become approachable. Notice that we have changed our criterion of optimization. Earlier we
had insisted on finding the design which is the best with certainty. This is analogous to hitting a speeding
bullet with another bullet. Now, because of goal softening, i.e., good enough solutions with high
probability, we are shooting a truck with a shotgun.

Let us define the following:

G = Good enough set (our goal, e.g. top 5 % of the design space)
S = Selected Set (the set that we pick based on simulation results, e.g. top s designs which have
the best simulation results )
|S G| = alignment
k = minimum alignment level desired
Our problem then becomes: How should we select the set S so that we will include at least k good designs
with high probability in the selected set? This approach is known as Ordinal Optimization, first introduced
by Ho et. al. 1992.
Ordinal Optimization Approach: Instead of estimating the best performance for sure, we settle for the
goood enough alternative with high probability
The main contribution of Ordinal Optimization is to reduce the computational burden of the problem by
orders of magnitude (e.g. Ho 1995, Patsis 1997). The key ideas of Ordinal Optimization can be explained
by the following 2 tenets:
(1)

"Order" converge exponentially fast while "value" converges at rate 1/(N)1/2, where N is the length of
simulation. ( Dai 1996, Xie 1997)

(2)

Probability getting something "good enough" increases exponentially with the size of the "good
enough" set. (Lau 1997 and Lee1999).

More importantly, the advantages of (1) and (2) multiplies rather than adds.
By introducing the concept of ordinal optimization, the difficulties of the original problem can be
overcome by the following ideas.

Although there might be many different SKUs, say 10 thousand different SKUs, in choosing the
designs, we can aggregate these SKUs to an affordable number, say 100 SKUs or even 10 SKUs.
Aggregation of SKUs may incur inaccuracy in estimating the performance values but by the goal
softening argument, we can have high confidence that the alignment between the good enough set and
the selected set is high.

Simulation is time consuming, but we can afford to run shorter simulations when the goal is softened.

If the good enough set is defined as top 5% of the design space, although the design space is large and
structureless, sampling 1,000 designs from it will guarantee containing some good enough designs
because the probability of not containing any top 5% designs in 1,000 samples =

(0.95)1000 0

By using the ideas above, the following algorithm was devised to find good enough solutions or designs
for this problem. A design is defined as a possible solution to the problem, and here it is defined as (,).

Algorithm 1:
STEP 1

Pick N designs (i.e., different strategies and different capacity allocations).

STEP 2

Aggregate different SKUs and run short simulations with only a few replications to
obtain rough estimates of the performance values.

STEP 3

Pick the top s observed designs.

STEP 4

Run long simulations with sufficient replications to estimate the true performance
values of these top s designs.

STEP 5

Compare the results to a pre-calculated performance upper bound. If the designer

finds the results not satisfactory, go to STEP 1, otherwise terminate.

The method of how to generate a design will be described in Appendix A while the upper bound
calculation will be in Appendix B.

4. Experiments
4.1 100 SKUs Experiment
In this experiment, we will use algorithm 1 to find good scheduling strategy for the problem. The
experiment scenario is described below:
Experiment Scenario:

There are 100 different SKUs. The demand type is seasonal-sine demand. The ratio of the average
demand in the peak season to the low season ranges from 3 to 7. The Cv of the SKUs ranges from 0.1
to 1.0, and the SKUs with high Cv have lower demand than the SKUs with lower Cv. The period of a
season is half year.

10

The lead time of quick line is 1 week, and lead time of regular line is 4 weeks.

CI = $0.08, Cm = $10, CL1 = $4.4, CL2 = $4 and PS =$20.

The "good enough" set G is defined as the top 5 % of the solution space, and N = 1,000.

In order to get the true performance value of a design, it will be necessary to run the detailed
simulation. In this experiment, we assume that a detailed simulation utilizes the entire 100 SKUs with
a simulation time = 500 weeks and the number of replications = 40.

The observed performance value of the design was estimated by running an aggregated 10 SKUs
simulation with time = 100 weeks and number of replication = 1. Notice that the time needed to
estimate the observed performance value is roughly 1/2000 of the time needed to estimate the true
performance value of the design. We have reduced the computation time from 1 week to several
minutes.

The results of the simulations are shown in table 1.

Keys:
s = number of designs selected by using the observed performance value.
k = number of overlaps of the selected s designs with true top-50 designs, i.e.,
alignment level |G S|.
( These top-50 designs are obtained by running all 1000 designs for detailed simulation. Notice that this is
a tremendous computational burden and precisely what our approach is trying to circumvent. However to
lend credibility to our approach, this is the only way to prove its validity. Once established, we need not
repeat this validation process in practical applications.)

k = predicted expected alignment level, i.e., E[k], or E[|G S| ].

J = the best performance value (profit) in the selected s designs.

0.4

356,834

1.8

358,999

11

10

3.96

358,999

20

11

7.86

358,999

50

26

18.36

359,504

100

38

32.51

359,504

Table 4.1 The alignment level and profit that we obtained for the 100 SKUs case
From the results in table 4.1, we have the following observations.

In order to get the true performance value of all the designs, simulations were run for one week, 24
hours a day, on a Sun SPARC 20 machine, but to get the observed performance values, we only
needed a run of several minutes. We have reduced the computation time by a factor of 2000.

The selected set S contains a high proportion of good enough designs. When we increase the size of
selected set S, the number of alignments between the good enough set

G and the selected set S

increases.

The performance value (manufacturing profit) of the best design in the selected set is only 3% away
from the pre-calculated upper bound (upper bound is $ 369,551). This means that this approach not
only guarantees to find good designs but also the design is close to the optimum.

The alignment level, k, is a good indicator of the goodness of the selected set. In practice, it can be
used to decide the size of the selected set. For example, if a user wants to have at average about 5
designs in the selected set, then he should set s equal to 10. However, in real world operations, it is
impossible to calculate this parameter because to know k requires knowledge of the true performance
values of all the designs. In order to quantify the selection,

k , the predicted expected alignment level

is introduced, and

k =

min( g , s )

kP(| G S |= k )
k =0

where g is the size of G and s is the size of S.

(10)

When the distribution of the noise and performance were known, we can estimate this quantity by the
method proposed in Lau 1997. The third column from table 4.1 shows the value of

k and it does

12

provide a good approximation to k. This suggests that our solutions can be quantifiable without
running detailed simulations for all the 1,000 designs.

In this example, although we only consider 100 SKUs, but it can be easily extended to 10,000 SKUs.
What we need to do is to aggregate these SKUs to an affordable number, say 10 SKUs. Then by using
the same algorithm, we can pick a selected set which contains some good enough.

Experiment 2
Experiment Scenario:

The experiment scenario of this experiment is similar to experiment 1 except that seasonal-impulse
demand model was used. The period of a season is half year and the peak sales last for 3 weeks. The
demand was adjusted so that the upper bound of the weekly profit found in this experiment was equal
to that of experiment 1.

The results of the simulations are shown in table 4.2.

0.4

$340,446

1.8

$350,016

10

5.75

$350,016

20

8.71

$353,865

50

23

14.54

$356,741

100

35

21.12

$356,741

Table 4.2 The alignment level and best profit obtained for the 100 SKUs case (periodicimpulse demand)

The results are similar to experiment 1, except that the best profit of selected set S is lower. This is
because the average demand function has a sudden change in volume during the peak season, and

13

therefore we have to start accumulating inventory long before the peak season begins in order to have
sufficient inventory to satisfy the needs of the peak season. Consequently, a higher average inventory
is needed and hence lower profits result.

4.2 100 SKUs Satisfaction Rate Experiments

For some company concerns, satisfying the customers demands is an important strategic requirement.
Failing to do so can result not only in lost profits due to lost sales, but also may put the company in the
danger of losing future market share. This motivates a concept called the satisfaction rate, which is simply
the fraction of time that demand is satisfied by the inventory level. Satisfaction rate is defined as,
Satisfaction rate =

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

(11)

where

1
( x) =
0

if
if

x0
x<0

(12)

Therefore, in order to maintain a high level of satisfaction rate, keeping a high inventory level is
unavoidable, which will induce a cost. However, the relation between enforcing the satisfaction rate and
the cost incurred is not obvious. In this section, by using the algorithm 1, we can quickly find this relation,
and this will serve as a good indicator for the production managers to know how to set their satisfaction
rate level.
After adding the satisfaction rate constraints, the problem becomes a constrained optimization problem. In
order to convert the problem back to unconstrained optimization, a penalty cost function is introduced.
Here assume that the average satisfaction rate, SR, of all SKUs have to be above certain level, , i.e.

SR =

1 M
E{[ I i (t ) d i (t )]}
M i =1 t =1

(13)

Therefore problem (P1) becomes

Max E[ J ( , )] Penalty ( SR; )

, [ 0 ,1]

(P2)

subject to all constraints in (P1).

The penalty function is is defined as followed,

14

c ( x ) 2
Penalty ( x; ) =
0

if

x<
otherwise

(14)

where c is the coefficient of the penalty function. The good enough set is defined as the designs that
belong to the top-n% of the design space in (P2). Since the problem is reduced to an unconstrained
problem, we can easily implement algorithm 1 to pick the selected set.
Experiment 3
Experiment Scenario:

The experiment scenario is same as experiment 1, except that the sale price, PS =$16, which is much
lower. For lower profit margin, we would keep a lower inventory level, and therefore the design that
gives the optimum profit level will have a low satisfaction rate. For the interest of this problem, we
will see how the costs incurred when we enforce the high satisfaction rate constraint.

The results of the simulations are shown in table 4.3.

s = number of designs selected by using the observed performance value
J = the true profit of the best design in the selected s designs.
s

with

satisfaction

no J with = 0.97

J with = 0.98

J with = 0.99

rate

constraint
1

$96,030

$92,686

$93,819

$88,283

$96,413

$95,210

$93,819

$92,147

10

$96,413

$95,210

$94,022

$92,147

20

$96,413

$95,210

$94,022

$92,147

50

$96,413

$95,210

$94,022

$92,147

Table 4.3 The results of the simulation when we have satisfaction rate constraints

15

From the results, we have observed that if we enforce the satisfaction rate higher than 0.97, there will
be a profit lost of $800 and when this constraint increase to 0.99, the cost incurred will be roughly
$4,000. This table, which is obtained within an hour, will be useful for a manager to know the cost
associated with the satisfaction rate constraint.

5. Conclusions

By using the concepts of ordinal optimization, this algorithm is very fast in generating a solution for
the complex problem, and, in general, it can save orders of magnitude of computation time. Therefore,
it can be applied to a lot of real problems, where simulation-based optimization is needed.

The results of the solution are not only in the top 5% of the design space, but also within 3% from the
upper bound of the solution.

This algorithm is also very flexible, and can be easily modified to accommodate a wide range of
operating conditions, e.g., adding another production line.

Appendix A Design Generation

While generating a design in this problem, can be generated by a uniform random number generator but
the generation of is not obvious. A poor representation of the strategy will give us poor performance
values. We will propose a method on generating , by the following arguments and figures.

16

Unit of
Apparel

Unit of
Apparel

d(t)
I(t)
I(t)
E[d(t)]
= d(t)

E[d(t)]

time
(a)

time

(b)
Unit of
Apparel

Unit of
Apparel

I(t)
(t)

d(t)

E[d(t)]
time
(c)

(t)

time
(d)

Figure 2 A graphical illustration of how to select the scheduling strategy

If there is no uncertainty in the demand process d(t), i.e., d(t) = E[d(t)], and we can take d(t) to be a
deterministic process, then we can arrange the production schedules to track d(t) as best we can (see figure
2(a)). This can be solved, in principle, by using well-known control theory tools such as dynamic
programming, or other ad hoc heuristic methods, if the size is too large. However, as shown in figure 2(b)
if the demand process d(t) is a random process, then it is clear that tracking E[d(t)] alone will not be
satisfactory (in figure 2(b), we can see that the inventory is too low to guarantee sales). Thus, we introduce
another process to play the role of a deterministic process from which we can plan our scheduling strategy.
This new process is called the target inventory level, denoted by (t), which is used to replace what we
have to, but cannot, track, i.e., d(t). This is shown in figure 2(c). Notice that (t) is not a random process.
Now we can solve a control problem to determine u(t) to follow (t) as best we can. u(t) will be the
production schedules. Therefore, we generate by first finding the target inventory level of each SKU,
and then finding production schedules that can track this target inventory level. This is shown in figure
2(d). The remaining problem is to find a method to generate a scheduling strategy that will track the target
level.

17

Target Tracking Strategy

The intuitive idea of the target tracking strategy is to arrange the production schedules so that by the
time the SKUs exit the production lines, the expected inventory level (which is equal to current
inventory level - expected demand + finished production) will be equal to the target inventory level.
When the production capacity is not enough, the capacity is allocated fairly among all the SKUs.
To determine the production schedule at time t, we use the algorithm described below.
Algorithm 2
STEP 1: At time t, allocate the quick line capacity to different SKUs.
The amount of production is scheduled so that by the time the product is shipped to the
warehouse, the expected inventory level will equal the target inventory level at that time.
While calculating the expected inventory level, we use current inventory information,
prescheduled production (i.e. the production that was scheduled before time t), and expected
future demand. When the capacity is not enough, allocate the resources fairly to all SKUs.
Fairly means, for each SKU, after resource allocation the ratio of the expected inventory
level to the target inventory level is same.

STEP 2: Allocate regular line production.

The same as STEP 1. The amount of the production is scheduled so that by the time the
product leaves the regular line, the expected inventory level will equal the target inventory
level at that time. The only difference from STEP 1 is while calculating the expected
inventory level, we not only use current inventory information, prescheduled production and
expected future demand, we also use future quick line production that will finish its
processing before the regular line production at time t. When the capacity is not enough,
again we will allocate the capacity fairly among the SKUs.

Appendix B Upper Bound Determination

18

The solution of the problem will be unchanged if we modify the objective function from total profit to
weekly profit, which is equal to total profit divided by . When is very large, and this problem can be
simplified or approximated by the following observations
1. To keep the system stable, the average weekly production will be roughly equal to the average weekly
sale.
2. The ratio of the average weekly production of the quick line and the regular line should be close to the
ratio of the capacity of quick line and the regular line when the utilization of the production lines is high.
3. By Littles law, the work in process (WIP) of the production should be equal to the average weekly
production multiply by the lead time.

From these three observations,

Problem (P1) becomes

Max E[ J ( , )]

(P3)

, [ 0 ,1]

where

1 M
( PS C m ) min( I i (t ), d i (t ))
i =1 t =1

J ( , ) =
M

( (C
i =1 t =1
M

L1

+ C I L1 ) + (1 )(C L2 + C I L2 )) min( I i (t ), d i (t ))

C I (t )
i =1 t =1

Subject to all constraints listed in (P1).

If we neglect the constraints, we can solve problem (P3). The objective function of (P3) only depends on
the inventory level and the capacity ratio of the quick line. Therefore, we can find the inventory level and
the capacity ratio that maximize the weekly profit. This weekly profit will be an upper bound of problem
(P1).
To maximize the weekly profit,

= 1 when (C L1 + C I L1 ) < (C L2 + C I L2 )
= 0 when (C L1 + C I L1 ) > (C L2 + C I L2 )

19

 [0,1] when (C L1 + C I L1 ) = (C L2 + C I L2 )
without loss of generosity, assume

(C L1 + C I L1 ) > (C L2 + C I L2 ) and = 0

Therefore

J ( ,0) =

1 M
( PS (C m + C L2 + C I L2 )) min( I i (t ), d i (t ))
i =1 t =1
M

C I (t )
I

(15)

i =1 t =1

Then,

E[min(I i (t ), d i (t )]
J ( ) 1
= ( PS (C m + C L2 + C I L2 ))
CI
I i (t )
I i (t )

J ( )
= 0 when
I i (t )
CI
E[min( I i (t ), d i (t )]
=
PS (C m + C L2 + C I L2 )
I i (t )

(16)

(17)

By solving equation B.5, we can get the inventory level, and the maximum weekly profit, which is the
upper bound of Problem (P1).

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