IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v212y2011i2p312-324.html
   My bibliography  Save this article

Joint management of capacity and inventory in make-to-stock production systems with multi-class demand

Author

Listed:
  • Mayorga, Maria E.
  • Ahn, Hyun-Soo

Abstract

We evaluate the benefits of coordinating capacity and inventory decisions in a make-to-stock production environment. We consider a firm that faces multi-class demand and has additional capacity options that are temporary and randomly available. We formulate the model as a Markov decision process (MDP) and prove that a solution to the optimal joint control problem exists. For several special cases we characterize the structure of the optimal policy. For the general case, however, we show that the optimal policy is state-dependent, and in many instances non-monotone and difficult to implement. Therefore, we consider three pragmatic heuristic policies and assess their performance. We show that the majority of the savings originate from the ability to dynamically adjust capacity, and that a simple heuristic that can adjust production capacity (based on workload fluctuation) but uses a static production/rationing policy can result in significant savings.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:ejores:v:212:y:2011:i:2:p:312-324
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377-2217(11)00101-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Melchiors, Philip, 2003. "Restricted time-remembering policies for the inventory rationing problem," International Journal of Production Economics, Elsevier, vol. 81(1), pages 461-468, January.
    2. Jennifer M. George & J. Michael Harrison, 2001. "Dynamic Control of a Queue with Adjustable Service Rate," Operations Research, INFORMS, vol. 49(5), pages 720-731, October.
    3. Mincsovics, Gergely & Tan, Tarkan & Alp, Osman, 2009. "Integrated capacity and inventory management with capacity acquisition lead times," European Journal of Operational Research, Elsevier, vol. 196(3), pages 949-958, August.
    4. 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.
    5. Lee, Jeong Eun & Hong, Yushin, 2003. "A stock rationing policy in a (s,S)-controlled stochastic production system with 2-phase Coxian processing times and lost sales," International Journal of Production Economics, Elsevier, vol. 83(3), pages 299-307, March.
    6. Uri Yechiali, 1973. "A Queuing-Type Birth-and-Death Process Defined on a Continuous-Time Markov Chain," Operations Research, INFORMS, vol. 21(2), pages 604-609, April.
    7. Albert Y. Ha, 1997. "Inventory Rationing in a Make-to-Stock Production System with Several Demand Classes and Lost Sales," Management Science, INFORMS, vol. 43(8), pages 1093-1103, August.
    8. Teunter, Ruud H. & Klein Haneveld, Willem K., 2008. "Dynamic inventory rationing strategies for inventory systems with two demand classes, Poisson demand and backordering," European Journal of Operational Research, Elsevier, vol. 190(1), pages 156-178, October.
    9. Jian Yang & Xiangtong Qi & Yusen Xia, 2005. "A Production-Inventory System with Markovian Capacity and Outsourcing Option," Operations Research, INFORMS, vol. 53(2), pages 328-349, April.
    10. Dellaert, Nico & de Kok, Ton, 2004. "Integrating resource and production decisions in a simple multi-stage assembly system," International Journal of Production Economics, Elsevier, vol. 90(3), pages 281-294, August.
    11. Jan A. Van Mieghem, 1998. "Investment Strategies for Flexible Resources," Management Science, INFORMS, vol. 44(8), pages 1071-1078, August.
    12. Francis de Véricourt & Fikri Karaesmen & Yves Dallery, 2002. "Optimal Stock Allocation for a Capacitated Supply System," Management Science, INFORMS, vol. 48(11), pages 1486-1501, November.
    13. Wijngaard, J. & Miltenburg, G. J., 1997. "On the cost of using capacity flexibility -- a dynamic programming approach," International Journal of Production Economics, Elsevier, vol. 53(1), pages 13-19, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kim, Hyunjung & Kim, Eungab, 2022. "A hybrid manufacturing system with demand for intermediate goods and controllable make-to-stock production rate," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1244-1257.
    2. Mohammad Najjartabar Bisheh & G. Reza Nasiri & Esmaeil Esmaeili & Hamid Davoudpour & Shing I. Chang, 2022. "A new supply chain distribution network design for two classes of customers using transfer recurrent neural network," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(5), pages 2604-2618, October.
    3. Shi, Xiutian & Shen, Houcai & Wu, Ting & Cheng, T.C.E., 2014. "Production planning and pricing policy in a make-to-stock system with uncertain demand subject to machine breakdowns," European Journal of Operational Research, Elsevier, vol. 238(1), pages 122-129.
    4. Bin Hu & Zhankun Sun, 2022. "Managing Self-Replicating Innovative Goods," Management Science, INFORMS, vol. 68(1), pages 399-419, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Samii, Amir-Behzad, 2016. "Impact of nested inventory allocation policies in a newsvendor setting," International Journal of Production Economics, Elsevier, vol. 181(PA), pages 247-256.
    2. Alfieri, Arianna & Pastore, Erica & Zotteri, Giulio, 2017. "Dynamic inventory rationing: How to allocate stock according to managerial priorities. An empirical study," International Journal of Production Economics, Elsevier, vol. 189(C), pages 14-29.
    3. Liu, Shudong & Song, Miao & Tan, Kok Choon & Zhang, Changyong, 2015. "Multi-class dynamic inventory rationing with stochastic demands and backordering," European Journal of Operational Research, Elsevier, vol. 244(1), pages 153-163.
    4. Teunter, Ruud H. & Klein Haneveld, Willem K., 2008. "Dynamic inventory rationing strategies for inventory systems with two demand classes, Poisson demand and backordering," European Journal of Operational Research, Elsevier, vol. 190(1), pages 156-178, October.
    5. Mohammad Najjartabar Bisheh & G. Reza Nasiri & Esmaeil Esmaeili & Hamid Davoudpour & Shing I. Chang, 2022. "A new supply chain distribution network design for two classes of customers using transfer recurrent neural network," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(5), pages 2604-2618, October.
    6. Ioannidis, Stratos, 2011. "An inventory and order admission control policy for production systems with two customer classes," International Journal of Production Economics, Elsevier, vol. 131(2), pages 663-673, June.
    7. FadIloglu, Mehmet Murat & Bulut, Önder, 2010. "A dynamic rationing policy for continuous-review inventory systems," European Journal of Operational Research, Elsevier, vol. 202(3), pages 675-685, May.
    8. van Jaarsveld, W.L. & Dekker, R., 2009. "Finding optimal policies in the (S - 1, S ) lost sales inventory model with multiple demand classes," Econometric Institute Research Papers EI 2009-14, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    9. P. Escalona & F. Ordóñez & I. Kauak, 2017. "Critical level rationing in inventory systems with continuously distributed demand," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 39(1), pages 273-301, January.
    10. Bing Lin & Shaoxiang Chen & Yi Feng & Jianjun Xu, 2018. "The Joint Stock and Capacity Rationings of a Make-To-Stock System with Flexible Demand," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 35(01), pages 1-27, February.
    11. Robert A. Shumsky & Fuqiang Zhang, 2009. "Dynamic Capacity Management with Substitution," Operations Research, INFORMS, vol. 57(3), pages 671-684, June.
    12. ElHafsi, Mohsen & Fang, Jianxin & Hamouda, Essia, 2021. "Optimal production and inventory control of multi-class mixed backorder and lost sales demand class models," European Journal of Operational Research, Elsevier, vol. 291(1), pages 147-161.
    13. Wang, Daqin & Tang, Ou, 2014. "Dynamic inventory rationing with mixed backorders and lost sales," International Journal of Production Economics, Elsevier, vol. 149(C), pages 56-67.
    14. Kim, Eungab & Park, Taeho, 2016. "Admission and inventory control of a single-component make-to-order production system with replenishment setup cost and lead time," European Journal of Operational Research, Elsevier, vol. 255(1), pages 91-102.
    15. Pinto, Roberto, 2012. "Stock rationing under service level constraints in a vertically integrated distribution system," International Journal of Production Economics, Elsevier, vol. 136(1), pages 231-240.
    16. Bijvank, Marco & Vis, Iris F.A., 2011. "Lost-sales inventory theory: A review," European Journal of Operational Research, Elsevier, vol. 215(1), pages 1-13, November.
    17. Quan-Lin Li & Yi-Meng Li & Jing-Yu Ma & Heng-Li Liu, 2023. "A complete algebraic solution to the optimal dynamic rationing policy in the stock-rationing queue with two demand classes," Journal of Combinatorial Optimization, Springer, vol. 45(3), pages 1-54, April.
    18. Tempelmeier, Horst, 2006. "Supply chain inventory optimization with two customer classes in discrete time," European Journal of Operational Research, Elsevier, vol. 174(1), pages 600-621, October.
    19. 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.
    20. Shone, Rob & Glazebrook, Kevin & Zografos, Konstantinos G., 2019. "Resource allocation in congested queueing systems with time-varying demand: An application to airport operations," European Journal of Operational Research, Elsevier, vol. 276(2), pages 566-581.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:212:y:2011:i:2:p:312-324. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.