Optimality of Zero-Inventory Policies for Unreliable Manufacturing Systems

Abstract

We show that there are ranges of parameter values describing an unreliable manufacturing system for which zero-inventory policies are exactly optimal even when there is uncertainty in manufacturing capacity. This result may be initially surprising since it runs counter to the argument that inventories are buffers against uncertainty and therefore one must strive to maintain a strictly positive inventory as long as there is any uncertainty. However, there is a deeper reason why this argument does not hold, and why a zero-inventory policy can be optimal even in the presence of uncertainty. This provable optimality reinforces the case for zero-inventory policies, which is currently made on the separate grounds that it enforces a healthy discipline on the entire manufacturing process.