  Production systems deteriorate stochastically due to usage and may eventually
break down, resulting in high maintenance costs at scheduled maintenance
moments. This deterioration behavior is affected by the system's production
rate. While producing at a higher rate generates more revenue, the system may
also deteriorate faster. Production should thus be controlled dynamically to
trade-off deterioration and revenue accumulation in between maintenance
moments. We study systems for which the relation between production and
deterioration is known and the same for each system as well as systems for
which this relation differs from system to system and needs to be learned
on-the-fly. The decision problem is to find the optimal production policy given
planned maintenance moments (operational) and the optimal interval length
between such maintenance moments (tactical). For systems with a known
production-deterioration relation, we cast the operational decision problem as
a continuous-time Markov decision process and prove that the optimal policy has
intuitive monotonic properties. We also present sufficient conditions for the
optimality of bang-bang policies and we partially characterize the structure of
the optimal interval length, thereby enabling efficient joint optimization of
the operational and tactical decision problem. For systems that exhibit
variability in their production-deterioration relations, we propose a Bayesian
procedure to learn the unknown deterioration rate under any production policy.
Our extensive numerical study indicates significant profit increases of our
approaches compared to the state-of-the-art.
