*Corresponding author. Tel.

: #46-13-28-1504; fax: #46-

13-28-8975.
E-mail address: rwg@ipe.liu.se (R.W. GrubbstroK m).
Int. J. Production Economics 68 (2000) 123}135
Modelling rescheduling activities in a multi-period
production}inventory system
Robert W. GrubbstroK m*, Ou Tang
Department of Production Economics, Linko( ping Institute of Technology, S-581 83 Linko( ping, Sweden
Received 1 April 1998; accepted 19 April 2000
Abstract
Decisions for planning production activities for multi-period production}inventory systems have been studied in
a number of papers applying input}output analysis and the Laplace transform. The decisions have concerned activities
spread out over time without having the opportunity to adjust future decisions when the external and/or internal
circumstances change. In this paper, we extend the analysis to situations when rescheduling is possible. Firstly, di!erent
classes of causes justifying rescheduling activities are presented including periodic rescheduling and `net changea.
Secondly, in terms of previously developed theory, we model the behaviour of a simple single-level production}inventory
system for which its production plan may be modi"ed at one point in the future. 2000 Elsevier Science B.V. All rights
reserved.
Keywords: Rescheduling; Laplace transform; Multi-period production}inventory system; Renewal process
1. Introduction
The purpose of a production}inventory system is
to meet the external market requirement by e$-
ciently using the resources in the system. In multi-
level production}inventory systems, material re-
quirements planning (MRP) is usually employed as
an information system to connect the relationships
between demand and supply of di!erent items.
Starting from the master production schedule
(MPS), MRP explodes detailed production deci-
sions from top-level items down to the lower-level
items. In several previous papers [1}5], optimisa-
tion conditions for production planning are derived
for such systems applying input}output analysis
and the Laplace transform. The production sched-
ule for end items is used as the MPS. When deter-
mining the MPS, safety stock considerations have
been included to enhance system performance. In
the theory hitherto developed, the opportunity for
adjusting the production schedule due to the
changed background circumstances has been disre-
garded within the planning horizon.
In a real production}inventory system, when the
system updates information about its operational
environment and the market forecast, there may be
reasons to change the previously decided produc-
tion schedule, although this schedule earlier was
regarded as the optimal one. Because of internal
and external unforeseen developments, there can
be a need to revise the schedule considerably. In
0925-5273/00/$- see front matter 2000 Elsevier Science B.V. All rights reserved.
PII: S 0 9 2 5 - 5 2 7 3 ( 0 0 ) 0 0 0 5 0 - 5
practice, this is often done either periodically, or
when a strong need is experienced.
On the other hand, every rescheduling of "nished
top-level items usually causes changes concerning
lower-level production plans due to the e!ects from
internal demand a!ected by the parts explosion.
Such adjustments of plans also have an augmented
e!ect in an assembly system, and this is often refer-
red to as system nervousness. Nervousness may be-
come the obstacle in the implementation of MRP
and even cause the collapse of the whole system.
A general discussion on rescheduling and the
related nervousness topic can be found in [6}9].
In this paper, we "rst review related work con-
cerning the rescheduling problem in multi-level and
related production}inventory systems. The basic
mechanism for justifying rescheduling is discussed
in an analytical framework. As a few preliminary
developments, a "rst model for rescheduling
departing from the net present value (NPV)
approach is analysed. Based on this model, a num-
ber of numerical examples are studied. The major
part of our "ndings is summarised in a concluding
section together with some ideas for developing this
theory in new directions.
2. Motives for rescheduling
Rescheduling refers to the process of changing
order or operation due dates, usually as a result of
their being out of phase with when they are needed
[10]. Due to an increasing uncertainty of the in-
formation while the previous plan is implemented,
MRP frequently needs to update unplanned events
within or outside the production}inventory system
in order to keep the information accurate. Unplan-
ned events of these kinds are usually considered to
emanate from the following four sources, which
also provoke the requirement for rescheduling,
namely (i) uncertainty in external demand; (ii) un-
certainty in supply conditions; (iii) e!ect of a rolling
planning horizon, and (iv) a `system e!ecta.
Changes in external demand conditions are very
common reasons for performing rescheduling ac-
tivities. Normally, the MPS is determined accord-
ing to a forecasted demand and assumed supply
situation, including considerations such as capacity
limitations. As soon as a customer changes his
demand pattern, either quantitatively or timely, the
original forecast needs to be adjusted. If the MPS is
frozen and such changes are ignored, di!erences
between demand and supply will develop resulting
for instance in a depressed service level or an in-
creased cost of holding inventory due to additional
capital tied up.
Neither the supply from outside nor the internal
supply of intermediate items is entirely predictable
in the real world situation. There can be a variation
in the vendor or production lead times, scrap can
exceed estimated quantities, errors are discovered
in inventory data, and machine breakdowns occur
[11]. All these causes re#ect that the information
on available inventory may be inaccurate. Whether
or not an original MRP plan should continue to be
implemented, depends on how to remedy the prob-
lem by rescheduling and the economic conse-
quences thereof.
The third motive for initiating a new schedule is
the rolling planning horizon. Blackburn et al. [12]
discussed the horizon sensitivity embedded in
many dynamic lot-sizing algorithms. When the
time of planning moves forward, new demand ap-
pears, which causes changes in part, if not all of the
previous MPS. A forward lot-sizing rule such as the
Silver-Meal algorithm, can diminish the horizon
sensitivity by accumulating the changes near to the
end of the horizon. However, such an algorithm
usually misses the optimal solution. Studies of ner-
vousness and lot-policy relationships can also be
found in [13}15]. Besides traditional lot-sizing
rules, we also observe that other optimal produc-
tion planning procedures, for example when using
the net present value (NPV) approach [2], are
sensitive to the planning horizon. The MPS always
faces a pressure to be rescheduled when time is
rolling forward.
Basically the last reason for rescheduling is a by-
product from the aforementioned three sources. In
a multi-level system, whenever the production deci-
sion is changed at a higher level, the MRP plan for
the related lower-level items will be out of phase.
This chain reaction downwards through the prod-
uct structure and upstream along the production
chain refers to excessive sensitivity and responsive-
ness of the whole MRP system to minor changes.
124 R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135
Fig. 1. Trade-o! between di!erent rescheduling decisions.
This is what is called `MRP nervousnessa. This
nervousness leads to increased costs, it reduces pro-
ductivity, it lowers the service level and it creates
general states of confusion on the shop #oor [16].
Nervousness is probably the main obstacle against
considering rescheduling opportunities.
3. Methods for rescheduling
Orlicky [17] pointed out that there are
two essential methods for updating information
and rescheduling in an MRP system. The "rst is
`schedule regenerationa and the second is `net
changea.
According to the American Production and
Inventory Control Society, regeneration is de"ned
to be a process approach in which the master
production schedule is totally re-exploded down
through all bills-of-materials, to maintain valid
priorities [10]. New requirements and planned or-
ders are completely recalculated and regenerated at
that time. One obvious advantage of this method is
that it purges errors that have accumulated in the
system so that the system information becomes
more accurate. Since it concerns all elements in the
system, a good solution can be obtained. On the
other hand, regeneration is limited by its frequency
due to the computational e!orts involved and their
corresponding cost.
A `net changea is an approach in which the
material requirements plan is continually retained
in the computer. Whenever a change is needed in
requirements, open order inventory status, or bill-
of-materials, a partial explosion and netting is
made for only those parts a!ected by the change.
Therefore, all irrelevant items are left untouched.
The calculation e!ort in this case is smaller. Orlicky
[17] and Oden et al. [18] mentioned that net
change might cause more nervousness because it
results in a high frequency of many minor changes,
and sometimes a rescheduling has to be made to
a recently rescheduled plan.
Most MRP software packages include both
methods. Net change is applied more frequently to
update information on a continuous basis while
regeneration is applied in a longer time interval to
refresh the whole system.
As mentioned in the previous section, the
purpose of rescheduling is to "ll the gap between
the forecasting information and the actual state.
Therefore, the service level of the system is expected
to increase and inventory costs are reduced. Never-
theless, the negative result from rescheduling is that
it creates nervousness. Fig. 1 illustrates that there is
a trade-o! between the rescheduling and opposite
non-rescheduling (stay) alternatives.
Carlson et al. [13] discussed the cost of ner-
vousness. Since a production plan is less sensitive to
the change of order volume or to cancel an order,
they concentrated on the cost of scheduling a new
setup. The cost is then supposed to be a function of
time. If the rescheduled setup is moved backwards
beyond the minimum lead time, the cost is in"nitely
large. In other intervals, they proposed using a sim-
ilar estimation procedure as for the usual setup cost
to obtain a rescheduling cost. However, we may
note that their nervousness cost is based on the
limitations of a single-level item system. The chain
e!ect of nervousness was ignored because of its
complexity. Van der Sluis [19] also stated that the
nervousness cost is determined by the early replen-
ishments, which cause all scheduled replenishments
to be moved forward. This follows the same frame-
work as of Carlson et al. but Van der Sluis focused
on a multi-level system.
Inderfurth [20] indicated that the consequences
from nervousness are di$cult to evaluate in terms
of costs, since rescheduling expenses not only de-
pend on the situation-speci"c availability of the
planning capacity, but they are also a!ected by the
R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135 125
performance of the whole system and the moral
reaction of the sta! involved.
Instead of investigating the trade-o! between res-
cheduling decisions in monetary terms, some re-
searchers have put e!ort into studying dampening
mechanisms for stabilising system nervousness. Ho
[21] suggested a dampening "lter to be used to screen
out insigni"cant rescheduling messages which de-
pend on the decision criterion used in the "lter, such
as limitation of time changes and the cost of ner-
vousness. Penlesky et al. [22] compared four di!er-
ent "ltering heuristics for rescheduling. All these
heuristics perform statistically better than the "xed
due-date procedure (no rescheduling) and dynamic
procedure (frequent rescheduling). A similar study
was also carried out by Christy and Kanet [23]. In
short, the advantage to accomplish rescheduling un-
der appropriate circumstances is obvious.
From our literature review, we have noticed that
most research carried out has been based on simu-
lation methodology when studying the reschedul-
ing problem. Analytical models appear only to
have been presented by Inderfurth [20], in which
he studied the impact on the stability of production
planning from di!erent parameters in inventory
control rules, such as from the (s, S) and (s, nQ)
policies. The objective function thus applied mea-
sured the stability of the system rather than in-
cluded economic consequences.
4. Basic problem
Our basic problem treated is how to determine
the appropriate circumstance for when and when
not to reschedule. In other words, what is to trigger
the act of rescheduling. Essentially, we envisage
that there are two main approaches. The "rst is
a time trigger, like regeneration and net change
taking place at regular pre-determined points in
time. The frequency is determined in advance and
the production}inventory system may be inspected
periodically to examine if there is a need or not to
reschedule. The second approach is that a state of
the system reached automatically triggers a res-
cheduling activity. Information concerning such
a state may be the inventory or backlog situation or
how much the actual demand has departed from
its previous forecast, etc. Similar two classes of
policies are studied in basic inventory theory with
periodic-review models and reorder-point systems.
Apart from limiting ourselves to a single-level
system, in our treatment to follow, we also con"ne
ourselves to a case in which there is only one point
of time in the future at which we can reconsider
a previously decided production plan. Hence, we
avoid complications from recurring rescheduling
opportunities. These limitations will be relaxed in
future studies since analysing multi-level produc-
tion}inventory systems is our main target. We also
assume that the horizon of the original plan (the
length of the time interval covered initially) does
not change at the time a new schedule is made, i.e.
we are not considering a rolling planning process.
This enables the possibility of a comparison be-
tween rescheduling or not. If and when the schedule
is changed, it concerns the remaining part of the
original horizon. As in previously developed the-
ory, demand will be assumed to follow a stochastic
renewal process.
As mentioned in Section 3, the cost from carrying
out a rescheduling operation is di$cult to deter-
mine in practice. For our purpose we assume that
there is a "xed exogenously determined cost asso-
ciated with deciding to reschedule.
At "rst, let us introduce the following notation.
The predetermined point in time at which a pre-
viously determined plan can be revised is , the
sequence of production decisions prior to this point
in time are denoted p and those at and beyond this
point are denoted p'.
Let d and d' represent dependent stochastic se-
quences of a demand process, before and after the
possible rescheduling time . Assume that these
have probability distributions written dF(z) and
dF'(uz), respectively, meaning that the probability
of an outcome d'"u might possibly depend on the
outcome of the previous sequence d"z.
The general framework for rescheduling is illus-
trated in the diagram in Fig. 2. At time 0, we make
decisions for production p and p' based on demand
sequences d and d'. At the rescheduling point, we
calculate the expected net present value with and
without rescheduling and make a comparison.
In Fig. 2, squares indicate decision points and
circles chance points at which stochastic sequences
126 R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135
Fig. 2. Decision-tree diagram for rescheduling.
are realised. The notation p
G
refers to di!erent pos-
sible choices of p, and d
H
to di!erent possible out-
comes of d, and similarly for p'
J
and d'
I
. For
expository reasons, the "gure assumes that there
exist "nite sets of opportunities for choosing the
production decisions and for demand outcomes,
but in our treatment below this limitation is not
required. The symbol in the "gure refers to
a `tolla amounting to the economic consequences
from making a new schedule. The stay option refers
to the opportunity to stick to the originally decided
plan for the period succeeding the rescheduling
point. The decision to reschedule is immediately
followed by a choice of new plan p'
J
.
Let NPV(p, p'd, d') be the stochastic economic
outcome, based on these four sequences. The objec-
tive function to be maximised is assumed to be the
expected value
E(NPV(p, p'd, d'))
"

NPV(p, p'z, u) dF'(uz) dF(z). (1)

A "rst basic question addressed, is whether there
exist simple conditions concerning the function
NPV(p, p'd, d') in order for the "rst part of the
decision sequence p to be optimal irrespective of
whether there is an opportunity to choose a new
second part of the sequence p' at after the "rst
outcome d has been revealed, or not.
We compare the two cases after introducing the
abbreviations x"p, y"p' and
a(x, y, z)"

S
NPV(p, p'z, u) dF'(uz)
"

S
NPV(x, yz, u) dF'(uz). (2)
In the "rst case, both the "rst and the second part of
the production decision sequence x"p and y"p'
are decided at the initial time t"0.
The optimisation problem for this case then
reads
NPVH"Max
V
Max
W

a(x, y, z) dF(z). (3)
Let xH and yH, respectively, denote the optimal
solution.
In the second case x"p is chosen at t"0 and y"
p' chosen at t" after the outcome z"d is known.
We now instead have the optimisation problem
NPVHH"Max
V

Max
W
a(x, y, z) dF(z). (4)
Let xHH denote the optimal solution for the "rst
part of the decision sequence and yHH(z) the optimal
remaining decision sequence (depending on the
outcome z) in this second case.
It is obvious that the second case in general
produces a higher value of the objective function as
given by the statement
NPVHH*NPVH.
If there were no cost associated with changing the
plan, in general, it would always pay to make the
change. You can never lose by doing this.
A major question remaining is whether or not the
optimal initial decision sequence remains the same
with and without the option to reschedule? In the
following theorem, we show that in a speci"c case of
independence between the periods, the original opti-
mal sequence for both parts of the horizon remains
optimal, also after the outcome z is revealed.
Theorem 1.
If
c`a(x, y, z)
cycz
,0, then xHH"xH and yHH"yH.
R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135 127
Hence, yHH will be independent of the outcome z. This
also implies that NPVHH"NPVH.
Furthermore, assuming a second, weaker type of
independence between the two parts of the horizon,
we "nd a su$cient condition for the "rst part of the
decision sequence to remain optimal whether or
not there are rescheduling opportunities:
Theorem 2.
If
c`a(x, y, z)
cxcy
,0, then xHH"xH.
Theorems 1 and 2 provide su$cient conditions
for the optimal "rst part of the decision sequence to
be the same, irrespective of whether or not there are
opportunities to revise the decisions. Their proofs
are included in the appendix. Necessary conditions
remain to be investigated.
As a simple example illustrating the rescheduling
problem, we consider the following variation of the
Newsboy problem. Let x be an amount produced
initially before a stochastic demand z occurs and let
y be an amount which can be produced to cover
a possible backlog when z is known. Let r be the
unit revenue, c the unit production cost, K the
setup cost and c( a unit penalty for each unit sold
from the second batch. Let us further assume that
z is exponentially distributed with a parameter
z and that r'c#c( . We distinguish three intervals
for z creating di!erent expressions for total pro"ts
(for simplicity written NPV):
a(x, y, z)"!c(x#y)!K(sgn(x)#sgn(y))
#

rz if z(x,
rz!c( (z!x) if x)z(x#y,
r(x#y)!c( y if x#y)z.
In the stay case, we have
NPVH"Max
V
Max
W

`
"
zeHXa(x, y, z) dz
"Max
V
Max
W

r(1!eH'V>W')!c( eHV(1!eHW'
z
!c(x#y)!K(sgn(x)#sgn(y))

which is maximised for

xH"
ln(r/c)
z
, yH"0, if K(
r!c(1#ln(r/c))
z
,
and xH"0, yH"0, otherwise.
When rescheduling is considered, we instead
obtain the problem
NPVHH"Max
V

`
"
zeHX Max
W
a(x, y, z) dz.
The inner maximisation has the solution
yHH"

z!x if z'x#K/(r!c!c( ),
0 elsewhere.
Inserting this function and developing the integral
gives us
NPVHH
"Max
V

r(1!eHV)#(r!c!c( )eH'V>)'PAA
(
''
z
!cx!K

,
which has the unique solution
xHH"

ln((r!(r!c!c( )eH)'PAA
(
')/c)
z
if K(
r!c
z
!cxHH,
0 otherwise.
Since r!(r!c!c( )eH)'PAA
(
'(r, the opti-
mum initial production xHH is smaller for the
rescheduling alternative compared to the stay
case and with positive production xH (a small K).
We may also note that the threshold value of K,
beyond which no production is optimal, is smaller
for the stay case than for the rescheduling case,
since
r!c(1#ln(r/c))
z
(
r!c
z
!cxHH.
Obviously, the opportunity to reschedule af-
fects the initial decision even in this simple
example.
128 R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135
5. Extension of NPVtheory to cover non-zero initial
net inventory
5.1. Stockout and inventory functions
The previously developed theory, in which
among other questions safety stock issues have
been focused upon [1,5], has treated cases when no
initial inventory nor any initial backlog have been
present. For treating a basic rescheduling problem,
the theory needs to be extended to cover cases with
opportunities for a non-zero initial net inventory.
The decision sequences p and p' from Section 4 are
now interpreted as sequences of batches produced
and the demand sequences d and d' as realisations
of a renewal process, i.e. a sequence of unit demand
events separated by independent stochastic time
intervals.
The net inventory written R(t) is de"ned to be
R(t)"S(t)!B(t), where S(t)*0 and B(t)*0 are
inventory and stockouts, respectively, and R(t) can
be either positive or negative. The relationship be-
tween expected inventory E(S(t)), expected stock-
outs E(B(t)), expected cumulative demand E(DM(t))
and cumulative production PM is given by
E(S(t))!E(B(t))"R(0)#PM!E(DM(t)), (5)
where R(0) is the initial net inventory. In terms of
the Laplace transform, we have
E(SI(s))!E(BI(s))"
R(0)
s
#PM
I
(s)!E(DM
I
(s)), (6)
where the tildes denote transforms of the corre-
sponding time functions. The symbol s is used for
the complex Laplace frequency.
In previous papers, for instance [2], the stockout
function has been developed in terms of the trans-
form for demand following a renewal process, as-
suming R(0)"0:
E(BI(s))"
f
I.
M
>
s(1!f
I
)
"E(DM
I
(s))!
1
s
.
M

H
f
IH, (7)
which holds for time intervals during which PM is
constant. Here f
I
(s) is the transform of the density
function of the time between two consecutive de-
mand events. In the case that R(0)#PM*0, we
immediately obtain the generalisation
E(BI(s))"
fI0'"'>.
M
>
s(1!fI)
"E(DM
I
(s))!
1
s
0'"'>.
M

H
f
IH. (8)
When R(0)#PM(0, we instead have
E(BI(s))"E(DM
I
)!
R(0)#PM
s
. (9)
Therefore, for the appropriate intervals during
which PM is given:
E(BI(s))"

f
I0'"'>.
M
>
s(1!f
I
)
"E(DM
I
)!
1
s
0'"'>.
M

H
fIH, R(0)#PM*0,
E(DM
I
)!
R(0)#PM
s
, R(0)#PM(0.
(10)
Similarly, we obtain the expected inventory func-
tion
E(SI(s))
"

R(0)#PM
s
!
f (1!f
I0'"'>.
M
)
s(1!f
I
)
, R(0)#PM*0,
0, R(0)#PM(0.
(11)
5.2. Objective function and optimisation conditions
As shown in previous papers, for instance [3],
the net present value of the cash #ow in this system
can easily be presented in terms of the Laplace
transform. By ignoring a possible lost sales event at
the end of the horizon, the expected Net Present
Value for the backlogging case can be written
NPV"r[E(DI(j))!jE(BI(j))#B(0)]
!
L

I
(K#c(PM
I
!PM
I
))eMRI
, (12)
where r, c, K and j are the given parameters being
the unit sales price, the unit production cost, the
"xed setup charge and the continuous interest rate,
respectively. We always assume that r'c, other-
wise there would never be any chance of making
a pro"t from the production. Cumulative produc-
tion is a staircase function described by the level
PM
I
during the interval t
I
)t(t
I>
. This staircase
R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135 129
cE(BI(s))
cPM
I
"[E(BI(w))]
.
M
I >
![E(BI(w))]
.
M
I
"
1
2i
@>G`
U@G`
([E(BI(w))]
.
M
I >
![E(BI(w))]
.
M
I
)
e'QU'RI
!e'QU'RI>
s!w
dw
"

!
1
2i
j@>G`
U@G`
f
I0'"'>.
M
I >
s
e'QU'RI
!e'QU'RI>
s!w
dw, R(0)#PM
I
*0,
!
1
2i
j@>G`
U@G`
1
s
e'QU'RI
!e'QU'RI>
s!w
dw, R(0)#PM
I
(0.
(15)
constitutes the production decisions to be taken.
The term jE(BI(j)) accounts for delayed payments
from backlogging and B(0) is the initial stockout at
time t"0. The objective function NPV is to be
maximised subject to constraints of the types
PM
I>
'PM
I
'0 and t
I>
't
I
*0, for k"1,
2,
2
, n, where n is the total number of batches until
the horizon.
Because cumulative production PM
I
is a staircase
function, the expected stockouts E(BI(j)) in the
above equation are the sum of E(BI(s)) multi-
plied by impulses of unit height and of a duration
restricted to each interval (the characteristic func-
tion). This multiplication in the time domain is
equivalent to a convolution in the frequency do-
main. Therefore,
E(BI(s))"
L

I"
[E(BI(s))]
.
M
I
*
eQRI
!eQRI>
s
"
1
2i
L

I"

@>G`
U@G`
[E(BI(w))]
.
M
I
;
e'QU'RI
!e'QU'RI>
s!w
dw, (13)
where the asterisk denotes the convolution opera-
tion and where [ is real and chosen so that the
integral converges. By convention, we let t
"
"0
and PM
"
"0. The time derivative is
cE(BI(s))
ct
I
"eQRI
[[E(B(t
I
))]
.
M
I
![E(B(t
I
))]
.
M
I
] (14)
and the di!erence with respect to PM
I
(being inte-
ger-valued) is
Since E(DI(j)) and B(0) in the objective function are
independent of the decision variables t
I
and PM
I
, the
necessary optimisation conditions thus read
cNPV
Rt
I
"jeMRI
(!r([E(B(t
I
))]
.
M
I
![E(B(t
I
))]
.
M
I
)
#(K#c(PM
I
!PM
I
))))0, (16)
cNPV
cPM
I
"!rj([E(BI(j))]
.
M
I >
![E(BI(j))]
.
M
I
)
!c(eMRI
!eMRI>
))0, (17)
for k"1, 2,
2
, n.
For the "rst batch time we have the weak in-
equality t

*0, whereas for later times t

I
'0, for
k*2, which create equalities in Eq. (16). The
complementarity conditions for the "rst time there-
fore requires
cNPV
ct

"0. (18)
5.3. Initial net inventory cases
The initial net inventory, either as an inventory
or a stockout, has an impact on the production
plan following. When there is an initial backlog,
which means that R(0)(0 and B(0)'0, the fol-
lowing theorem for the system applies.
Theorem 3. The optimal xrst batch PM

is at least
B(0), i.e. PM

*B(0), or PM

#R(0)*0. This means

that any initial backlog is immediately covered by the
xrst batch.
130 R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135
Table 1
Parameters of the production}inventory calculations
Case 1 Case 2 Case 3 Case 4 Case 5
Planning horizon K 500 500 500 500 500
Interest rate j 0.01 0.01 0.01 0.01 0.01
Demand rate z 1 1 1 1 1
Sales price r 5000 2000 1000 1000 1000
Fixed setup cost K 100 100 100 300 600
Variable production cost c 100 100 100 100 100
Fig. 3. Relative gain in NPV discounted to time t" vs.
rescheduling time for Cases 1}3.
Regarding conditions for the "rst batch time to
be positive or zero, we have results given by the
following theorem.
Theorem4. (a) If the revenue from the initial stockout
is larger than the total cost of the xrst batch,
rB(0)'K#cPM

, there is a requirement for an im-

mediate setup, t

"0. (b) If initial stockout B(0) is

less than K/(r!c), we must always wait for the xrst
setup, i.e. t

'0. Hence, if the xrst setup is immedi-

ate, i.e. t

"0, then we must have B(0)*K/(r!c).

We also easily "nd that t

'0 implies
PM

*r(B(0)!K)/c. However, we have not yet been

able to "nd su$cient conditions for an immediate
setup expressed only in terms of the production
parameters K, c, r and j.
The results above are used for determining the
optimal future production plan when choosing the
rescheduling alternative. Proofs are given in the
appendix.
6. Numerical examples
Based on the rescheduling problem stated in
Section 4, we calculate the value from rescheduling
in the following "ve examples. First we release
a production plan at t"0 according to the initial
net inventory situation. At the rescheduling point
, we then compare the di!erence between the
expected future NPV for the rescheduling and stay
alternatives calculated from t" and onwards.
External demand is assumed to follow a Poisson
process. The stay alternative is based on initial
decisions assuming no rescheduling to be possible
(the xH solution in Section 4). The rescheduling
decisions are determined based on prior batch deci-
sions and the backlog at (the function yHH(xHH, z)
in Section 4). The comparisons made thus implicitly
assume that the optimal initial decisions are equal
(xHH"xH) irrespective of the opportunity to res-
chedule. The parameter values chosen for the pro-
duction}inventory system are listed in Table 1.
When choosing di!erent alternative points at
which the production plan can be revised, the cal-
culations show that the value from rescheduling
increases with the rescheduling time in case the
time discount factor eM2 is disregarded
(Figs. 3 and 4). These curves also indicate a fairly
linear relationship. For di!erent sales prices, the
slope of the curve changes dramatically (Fig. 3). On
the other hand, di!erent setup costs generate some-
what the same slopes (Fig. 4). When the discount
factor eM2 is considered (NPV is calculated with
reference to time zero), we have always found
R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135 131
Fig. 4. Relative gain in NPV discounted to time t" vs.
rescheduling time for Cases 3}5.
Fig. 5. Relative gain in NPV discounted to time t"0 vs. res-
cheduling time for Cases 1}3.
Fig. 6. Relative gain in NPV discounted to time t"0 vs. res-
cheduling time for Cases 3}5.
Fig. 7. The NPV vs. net inventory for the rescheduling and stay
alternatives. For negative net inventories below s

and positive
net inventories above s
`
it is advantageous to reschedule.
a maximum point for the NPV gain in di!erent
cases. However, Figs. 5 and 6 indicate that the
maximum point is insensitive with respect to the
parameters r and K.
Even though the expressions for the optimisation
conditions are complicated, the numerical example
shows that its NPV is quite linear with respect to
the net inventory at (Fig. 7). This linearity might
suggest that there is an independence of a kind that
would justify the assumption xH"xHH.
A zero net inventory generates the lowest NPV.
For a positive net inventory, the NPV of the stay
alternative is almost constant (slightly increasing).
This means that additional initial inventory does
not have an obvious impact on the expected stock-
out. On the other side, for a negative net inventory,
when making it more and more negative, NPV will
"rst increase but approaches a constant level for
very high backlogs. For small stockout levels at
t", the NPV di!erence is marginal between the
rescheduling and stay alternatives. This is due to
the insigni"cant di!erence in the optimum res-
cheduling and stay production decisions (staircase
function) for a small stockout.
If we include a rescheduling cost in the model
(c' in Fig. 7), the size of the gap between the NPV of
the rescheduling and stay alternatives determines
an interval, outside of which it is advantageous to
revise the plan. Consequently, the boundary gaps
determine the states that should trigger a res-
cheduling.
From the numerical example, we also notice that
the "rst batch time of the new schedule tends to-
wards zero when the initial stockout is high
enough. When this "rst batch time is zero, the steps
of the resulting staircase function (PM
I
#R(0), t
I
) are
identical, which simpli"es the analysis. Therefore,
132 R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135
"nding the boundary value of the initial stockout
for the "rst batch to be zero is imperative. Never-
theless, this su$cient condition still needs to be
further investigated as mentioned in Section 5.
7. Summary
This paper aims to take a "rst glance at the
rescheduling problem in a production}inventory
system based on our previous research. After a lit-
erature review of related topics, we designed a gen-
eral model for addressing the rescheduling problem
in the single-level case. The gap between the res-
cheduling and stay alternatives can be calculated
from the model and can be compared with an
exogenously determined rescheduling cost.
By relaxing the initial inventory constraints in
the previous NPV theory, we have also obtained
some insights into the impact of the initial net
inventory level on the optimal production plan.
The optimal production decision for the "rst batch,
especially the "rst batch time, is important in a res-
cheduling study. So far as we know, this will also
constitute the main constraint for the rescheduling
of lower-level items in a multi-level extension.
However, the su$cient conditions for an immedi-
ate setup still cannot be expressed only in terms of
the production parameters such as K, c, r, j. It also
depends on PM

, which is a decision variable in the

system. This should be an important problem to be
solved in a future study.
Our discussion in Section 4 has shown su$cient
conditions for the optimal solutions xH and xHH to
coincide. However, in general, the optimal decision
sequences before the rescheduling point are di!er-
ent for the cases with and without rescheduling
options. Even in a simple case, as the example in
Section 4 indicated, the optimal solutions xH and
xHH are di!erent. There is therefore a strong need to
investigate such conditions further.
Appendix A
Proof of Theorem 1. The general solution to
[c`a(x, y, z)]/(cy cz)"0 may be written as the sum
of two arbitrary functions having the arguments
according to a(x, y, z)"A(x, y)#B(x, z). The "rst
maximisation case then reads
NPVH"Max
V
Max
W

(A(x, y)#B(x, z)) dF (z)
"Max
V
Max
W
(A(x, y)#

B(x, z) dF (z))
"Max
V
(A(x, yH)#

B(x, z) dF (z))
"A(xH, yH)#

B(xH, z) dF (z),
and the second
NPVHH"Max
V

Max
W
(A(x, y)#B(x, z)

dF (z)
"Max
V

Max
W
(A(x, y)#

B(x, z) dF (z)

"Max
V

A(x, yHH)#

B(x, z) dF (z)

.
Hence, yHH is determined by the same maximisa-
tion as yH and therefore yHH"yH. Then the remain-
ing maximisation with respect to x will also be the
same as before, i.e. xHH"xH.
Proof of Theorem 2. The general solution to
[c`a(x, y, z)]/(cx cy),0 may be written as the sum
of two arbitrary functions having the arguments
according to a(x, y, z)"M(x, z)#N(y, z).
For the "rst maximisation case we have
NPVH"Max
V
Max
W

(M(x, z)#N(y, z)) dF (z)
"Max
V

M(x, z) dF (z)#Max
W

N(y, z) dF (z)
"

M(xH, z) dF (z)#

N(yH, z) dF (z).
For the second case we instead have
NPVH"Max
V

M(x, z)#Max
W
N(y, z)

dF (z)
R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135 133
"Max
V

M(x, z) dF (z)#

Max
W
N(y, z) dF (z)
"

M(xHH, z) dF (z)#

N(yHH(z), z) dF (z).
Therefore, the maximisation with respect to x in the
two cases coincide and xHH"xH, whereas this is
not true in the general case concerning the maxi-
misation with respect to y.
Proof of Theorem 3. We assume the converse,
namely that PM

#R(0)(0. Then from Eq. (15) we

have
cNPV
cPM

"!rj([E(BI(j))]
.
M
>
![E(BI(j))]
.
M

)
!c(eMR
!eMR`
)
"!rj

!
1
2i
@>G`
U@G`
1
j
;
e'MU'R
!e'MU'R`
j!w
dw

!c(eMR
!eMR`
)
"rj

Res
M"
1
j
e'MU'R
!e'MU'R`
j!w
!c(eMR
!eMR`
)
"rj

1
j
(eMR
!eMR`
)

!c(eMR
!eMR`
)
"(r!c)(eMR
!eMR`
)'0.
This contradicts the optimisation condition (17).
Hence, it pays to increase PM

inde"nitely as long as
PM

#R(0)"PM

#B(0)(0. Therefore, in the opti-

mum we must have PM

*B(0), meaning that the

"rst batch at least must cover the initial backlog.
Proof of Theorem4. Since f
IH(s)/s is the transform of
a cumulative probability distribution with no
jumps, it always holds that f
IH(s)/s*0 and
that lim
R"
f
IH(s)/s"lim
Q`
s f
IH(s)/s , for all j.
For a system with an initial stockout, we have
R(0)(0. Then
cNP<
ct

"jeMR
(!r[E(B(t

))]
.
M
"
![E(B(t

))]
.
M

)#K#cPM

)
"jeMR

!r

[E(DM)]#B(0)
!

[E(DM)]!

1
s
.
M
'"'

H
f
IH

#K#c(PM

!PM
"
)

"jeMR

!r

B(0)#

1
s
.
M
'"'

H
f
IH

#K#cPM

)jeMR
(!rB(0)#K#cPM

).
Hence, if K#cPM

(rB(0) then cNPV/ct

(0 and
from Eq. (18) t

"0. From Theorem 3, we have

PM

*B(0). Therefore, if K'(r!c)B(0), it must

hold that t

'0.
When instead B(0)"0, which means R(0)*0,
the derivative is evaluated as
cNPV
ct

"jeMR

!r

1
s
0'"'

H
f
IH

1
s
0'"'>.
M

H
f
IH

#K#cPM

.
Then, by Theorem 3 we obtain
cNPV
ct

R"
"j(K#cPM

)*j(K#cB(0))'0,
which contradicts the optimisation condition
Eq. (16). Therefore, t

'0.
References
[1] R.W. GrubbstroK m, A. Molinder, Safety stock plans in
MRP-systems using transform methodology, Interna-
tional Journal of Production Economics 46&47 (1996)
297}309.
134 R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135
[2] R.W. GrubbstroK m, Stochastic properties of a production-
inventory process with planned production using trans-
form methodology, International Journal of Production
Economics 45 (1996) 407}419.
[3] R.W. GrubbstroK m, A net present value approach to safety
stocks in planned production, International Journal of
Production Economics 56&57 (1998) 213}229.
[4] R.W. GrubbstroK m, A net present value approach to safety
stocks in a multi-level MRP system, International Journal
of Production Economics 59 (1998) 361}375.
[5] R.W. GrubbstroK m, O. Tang, Further developments on
safety stocks in an MRP system applying Laplace trans-
forms and input}output methodology, International Jour-
nal of Production Economics 60&61 (1999) 381}387.
[6] D.C. Steel, The nervous MRP system: How to do battle,
Production and Inventory Management 14 (4) (1975) 83}89.
[7] H. Mather, Reschedule the reschedules you just res-
cheduled: Way of life for MRP, Production and Inventory
Management 18 (1) (1977) 60}79.
[8] J.R. Mini"e, R.A. Davis, Survey of MRP nervousness
issues, Production and Inventory Management 17 (3)
(1986) 111}120.
[9] J.R. Mini"e, R.A. Davis, Interaction e!ects on MRP ner-
vousness, International Journal of Production Research 28
(1) (1990) 173}183.
[10] APICS, APICS Dictionary, 8th Edition, American Pro-
duction and Inventory Control Society, Falls Church, VA,
1995.
[11] R.J. Penlesky, W.L. Berry, U. WemmerloK v, Open order
due date maintenance in MRP systems, Management
Science 35 (5) (1989) 571}584.
[12] J.D. Blackburn, D.H. Kropp, R.A. Millen, A Comparison
of Strategies to Dampen Nervousness in MRP Systems,
Management Science 32 (4) (1986) 413}429.
[13] R.C. Carlson, J.V. Jucker, D.H. Kropp, Less nervous MRP
systems: A dynamic economic lot-sizing approach, Man-
agement Science 25 (8) (1979) 754}761.
[14] R.C. Carlson, S.L. Beckman, D.H. Kropp, The e!ec-
tiveness of extending the horizon in rolling production
scheduling, Decision Sciences 13 (1982) 129}146.
[15] D.H. Kropp, R.C. Carlson, J.V. Jucker, Concepts, theories,
and techniques: Heuristic lot-sizing approaches for dealing
with MRP system nervousness, Decision Sciences 14
(1983) 156}169.
[16] S.N. Kadipasaoglu, V. Sridharan, Alternative approaches
for reducing schedule instability in multistage manufactur-
ing under demand uncertainty, Journal of Operations
Management 13 (1995) 193}211.
[17] J. Orlicky, Material Requirements Planning, McGraw-
Hill, New York, 1975.
[18] H.W. Oden, G.A. Langenwalter, R.A. Lucier, Handbook
of Material & Capacity Requirements Planning,
McGraw-Hill, New York, 1993.
[19] E. Van der Sluis, Reducing system nervousness in multi-
product inventory systems, International Journal of Pro-
duction Economics 30&31 (1993) 551}562.
[20] K. Inderfurth, Nervousness in inventory control: Analyti-
cal results, OR Spektrum 16 (1994) 113}123.
[21] C. Ho, Evaluating the impact of operating environments
on MRP system nervousness, International Journal of
Production Research 27 (7) (1989) 1115}1135.
[22] R.J. Penlesky, U. WemmerloK v, W.L. Berry, Filtering heu-
ristics for rescheduling open orders in MRPsystems, Inter-
national Journal of Production Research 29 (11) (1991)
2279}2296.
[23] D.P. Christy, J.J. Kanet, Open order rescheduling in job
shops with demand uncertainty: A simulation study, Deci-
sion Sciences 19 (1988) 801}818.
R.W. Grubbstro( m, O. Tang / Int. J. Production Economics 68 (2000) 123}135 135