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Production and Subcontracting Strategies for Manufacturers with Limited Capacity and Volatile Demand

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  • Barış Tan
  • Stanley Gershwin

Abstract

We study a manufacturing firm that builds a product to stock to meet a random demand. If there is a positive surplus of finished goods, customers make their purchases without delay and leave. If there is a backlog, the customers are sensitive to the quoted lead time and some choose not to order if they feel that the lead time is excessive. A set of subcontractors, who have different costs and capacities, are available to supplement the firm's production capacity. We derive a feedback policy that determines the production rate and the rate at which the subcontractors are requested to deliver products. The performance of the system, when it is managed according to this policy, is evaluated. Copyright Kluwer Academic Publishers 2004

Suggested Citation

  • Barış Tan & Stanley Gershwin, 2004. "Production and Subcontracting Strategies for Manufacturers with Limited Capacity and Volatile Demand," Annals of Operations Research, Springer, vol. 125(1), pages 205-232, January.
    • Handle: RePEc:spr:annopr:v:125:y:2004:i:1:p:205-232:10.1023/b:anor.0000011192.23903.7f
    DOI: 10.1023/B:ANOR.0000011192.23903.7f
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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. 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.
    3. Rivera-Gómez, Héctor & Gharbi, Ali & Kenné, Jean-Pierre & Montaño-Arango, Oscar & Hernandez-Gress, Eva Selene, 2016. "Production control problem integrating overhaul and subcontracting strategies for a quality deteriorating manufacturing system," International Journal of Production Economics, Elsevier, vol. 171(P1), pages 134-150.
    4. Eugene Khmelnitsky & Gonen Singer, 2015. "An optimal inventory management problem with reputation-dependent demand," Annals of Operations Research, Springer, vol. 231(1), pages 305-316, August.
    5. Barış Tan, 2019. "Production Control with Price, Cost, and Demand Uncertainty," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 41(4), pages 1057-1085, December.
    6. Reimann, Marc, 2011. "Speculative production and anticipative reservation of reactive capacity by a multi-product newsvendor," European Journal of Operational Research, Elsevier, vol. 211(1), pages 35-46, May.
    7. Annie Francie, Kouedeu & Jean-Pierre, Kenne & Pierre, Dejax & Victor, Songmene & Vladimir, Polotski, 2014. "Stochastic optimal control of manufacturing systems under production-dependent failure rates," International Journal of Production Economics, Elsevier, vol. 150(C), pages 174-187.
    8. Mayorga, Maria E. & Ahn, Hyun-Soo, 2011. "Joint management of capacity and inventory in make-to-stock production systems with multi-class demand," European Journal of Operational Research, Elsevier, vol. 212(2), pages 312-324, July.
    9. Frederick H Abernathy & Anthony Volpe & David Weil, 2006. "The Future of the Apparel and Textile Industries: Prospects and Choices for Public and Private Actors," Environment and Planning A, , vol. 38(12), pages 2207-2232, December.

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