An Approach to Linear Inventory-Production Rules

A method is presented for choosing the constants in a linear production rule so as to achieve an optimal balance between the cost of inventory fluctuation and cost of production-level fluctuation. The central idea is to measure fluctuation by mean-squared error about some level and to give a ready method for computing these “variances” in terms of certain unspecified constants. The constants may subsequently be picked so as to achieve the desired optimal balance. The subject matter of this paper is one of methodology and does not concern itself with a case history.