Bi-level optimization of inventory-production management.

Bi-level formalization is applied to define an optimization problem that integrates two important business tasks: inventory management and production with the delivered resources. The inventory task increases costs and they reduce the potential profit of the business entity. On the contrary, the production task directly increases profit, but it has resource limitations provided by the inventory policy. Synchronization of these two tasks can benefit the business entity and increase its profit. The paper provides a formalization of such a problem, allowing maximizing the profit from integrating these two tasks into a common business policy. The upper problem in the bi-level formalization is aimed at minimizing the cost, allocated to resource delivery. The low-level problem aims to maximize production by using available resources. As a result, the objective function of the bi-level problem is aimed at maximizing profit. [ABSTRACT FROM AUTHOR]