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Managing Capacity and Inventory Jointly in Manufacturing Systems

Author

Listed:
  • James R. Bradley

    (Johnson Graduate School of Management, Cornell University, Ithaca, New York 14853-6021)

  • Peter W. Glynn

    (MSE Department, Stanford University, Stanford, California 94305-4026)

Abstract

In this paper, we develop approximations that yield insight into the joint optimization of capacity and inventory,and how the optimal inventory policy varies with capacity investment in a single-product, single-station, make-to-stock manufacturing system in which inventory is managed through a base-stock policy. We allow for a correlated demand stream as we analyze our models in an asymptotic regime,in which the penalty and holding costs are small relative to the cost of capacity. Although our approximations are asymptotically correct,our Brownian approximation is accurate even under moderate traffic intensity.

Suggested Citation

  • James R. Bradley & Peter W. Glynn, 2002. "Managing Capacity and Inventory Jointly in Manufacturing Systems," Management Science, INFORMS, vol. 48(2), pages 273-288, February.
    • Handle: RePEc:inm:ormnsc:v:48:y:2002:i:2:p:273-288
    DOI: 10.1287/mnsc.48.2.273.254
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nasuh Buyukkaramikli & Henny Ooijen & J. Bertrand, 2015. "Integrating inventory control and capacity management at a maintenance service provider," Annals of Operations Research, Springer, vol. 231(1), pages 185-206, August.
    2. Jodlbauer, Herbert & Altendorfer, Klaus, 2010. "Trade-off between capacity invested and inventory needed," European Journal of Operational Research, Elsevier, vol. 203(1), pages 118-133, May.
    3. Nha-Nghi Cruz & Hans Daduna, 2019. "Optimal capacity allocation in a production–inventory system with base stock," Annals of Operations Research, Springer, vol. 277(2), pages 329-344, June.
    4. Feng, Haofang & Zhang, Sheng Hao & Zhang, Yong, 2023. "Managing production-inventory-maintenance systems with condition monitoring," European Journal of Operational Research, Elsevier, vol. 310(2), pages 698-711.
    5. Bradley, James R., 2005. "Optimal control of a dual service rate M/M/1 production-inventory model," European Journal of Operational Research, Elsevier, vol. 161(3), pages 812-837, March.
    6. Altendorfer, Klaus & Minner, Stefan, 2011. "Simultaneous optimization of capacity and planned lead time in a two-stage production system with different customer due dates," European Journal of Operational Research, Elsevier, vol. 213(1), pages 134-146, August.
    7. Jan A. Van Mieghem, 2003. "Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments," Manufacturing & Service Operations Management, INFORMS, vol. 5(4), pages 269-302, July.
    8. Opher Baron, 2008. "Regulated Random Walks and the LCFS Backlog Probability: Analysis and Application," Operations Research, INFORMS, vol. 56(2), pages 471-486, April.
    9. Martínez-Costa, Carme & Mas-Machuca, Marta & Benedito, Ernest & Corominas, Albert, 2014. "A review of mathematical programming models for strategic capacity planning in manufacturing," International Journal of Production Economics, Elsevier, vol. 153(C), pages 66-85.
    10. Tamer Boyacı & Özalp Özer, 2010. "Information Acquisition for Capacity Planning via Pricing and Advance Selling: When to Stop and Act?," Operations Research, INFORMS, vol. 58(5), pages 1328-1349, October.
    11. Bo Li & Antonio Arreola‐Risa, 2022. "Minimizing conditional value‐at‐risk under a modified basestock policy," Production and Operations Management, Production and Operations Management Society, vol. 31(4), pages 1822-1838, April.
    12. Gad Allon & Jan A. Van Mieghem, 2010. "Global Dual Sourcing: Tailored Base-Surge Allocation to Near- and Offshore Production," Management Science, INFORMS, vol. 56(1), pages 110-124, January.
    13. van Eekelen, Wouter, 2023. "Distributionally robust views on queues and related stochastic models," Other publications TiSEM 9b99fc05-9d68-48eb-ae8c-9, Tilburg University, School of Economics and Management.
    14. Wouter van Eekelen & Dick den Hertog & Johan S.H. van Leeuwaarden, 2022. "MAD Dispersion Measure Makes Extremal Queue Analysis Simple," INFORMS Journal on Computing, INFORMS, vol. 34(3), pages 1681-1692, May.
    15. Sunney Fotedar & Ann-Brith Strömberg & Torgny Almgren & Stefan Cedergren, 2023. "A criterion space decomposition approach to generalized tri-objective tactical resource allocation," Computational Management Science, Springer, vol. 20(1), pages 1-28, December.
    16. David A. Goldberg & Martin I. Reiman & Qiong Wang, 2021. "A Survey of Recent Progress in the Asymptotic Analysis of Inventory Systems," Production and Operations Management, Production and Operations Management Society, vol. 30(6), pages 1718-1750, June.
    17. Smirnov, Dina & van Jaarsveld, Willem & Atan, Zümbül & de Kok, Ton, 2021. "Long-term resource planning in the high-tech industry: Capacity or inventory?," European Journal of Operational Research, Elsevier, vol. 293(3), pages 926-940.
    18. Aouam, Tarik & Kumar, Kunal, 2019. "On the effect of overtime and subcontracting on supply chain safety stocks," Omega, Elsevier, vol. 89(C), pages 1-20.
    19. Nasuh Buyukkaramikli & J. Bertrand & Henny Ooijen, 2013. "Flexible hiring in a make to order system with parallel processing units," Annals of Operations Research, Springer, vol. 209(1), pages 159-178, October.
    20. Hongmin Li & Stephen C. Graves & Woonghee Tim Huh, 2014. "Optimal Capacity Conversion for Product Transitions Under High Service Requirements," Manufacturing & Service Operations Management, INFORMS, vol. 16(1), pages 46-60, February.
    21. Josh Reed & Bo Zhang, 2017. "Managing capacity and inventory jointly for multi-server make-to-stock queues," Queueing Systems: Theory and Applications, Springer, vol. 86(1), pages 61-94, June.

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