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Managing capacity and inventory jointly for multi-server make-to-stock queues

Author

Listed:
  • Josh Reed

    (Leonard N. Stern School of Business, Kaufman Management Center)

  • Bo Zhang

    (IBM T.J. Watson Research Center)

Abstract

We consider joint capacity–inventory management for multi-server make-to-stock queues operating under a base stock policy. The number of servers corresponds to the capacity decision, and the base stock level is the inventory decision. Our goal is to minimize a combination of capacity, inventory, and backordering costs. We develop a square-root rule for the joint decision and justify the rule analytically in a many-server queue asymptotic framework. We demonstrate the accuracy of the square-root rule, first via our derivation and numerical assessment of a novel corrected diffusion approximation and then more directly by conducting extensive numerical experiments. Finally, we provide operational insights into the trade-offs involved in such joint management problems, through various analysis based on the square-root rule as well as a comparison with analogous results for single-server make-to-stock queues.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:queues:v:86:y:2017:i:1:d:10.1007_s11134-017-9519-0
    DOI: 10.1007/s11134-017-9519-0
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    References listed on IDEAS

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    Cited by:

    1. 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.

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