pagesWe consider a manufacturing system with stochastic demand and predictable production yield. The manufacturer has predetermined prices and limited production capacity in each period. The producer also has the option to save some inventory for future periods even if there is demand in the current period. The demand that is not met is lost or may be backordered for only one period. Our objective is to maximize the expected profit by choosing optimal production, save and backorder quantities in each period. We formulate this problem as a Markov Decision Process where the state of the system is represented by the net inventory and the efficiency parameter. We show that a modified (Y, S , B) policy is optimal in each period. At the end, we have some computational analysis to examine the effects of yield on the optimal decisions.