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The Impact of Adding a Make-to-Order Item to a Make-to-Stock Production System

Author

Listed:
  • Awi Federgruen

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Ziv Katalan

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

Stochastic Economic Lot Scheduling Problems (ELSPs) involve settings where several items need to be produced in a common facility with limited capacity, under significant uncertainty regarding demands, unit production times, setup times, or combinations thereof. We consider systems where some products are made-to-stock while another product line is made-to-order. We present a rich and effective class of strategies for which a variety of cost and performance measures can be evaluated and optimized efficiently by analytical methods. These include inventory level and waiting-time distributions, as well as average setup, holding, and backlogging costs. We also characterize how strategy choices are affected by the system parameters. The availability of efficient analytical evaluation and optimization methods permits us to address the impact of product line diversification or standardization on the performance of the manufacturing system, in particular the logistical implications of adding low-volume specialized models to a given make-to-stock product line.

Suggested Citation

  • Awi Federgruen & Ziv Katalan, 1999. "The Impact of Adding a Make-to-Order Item to a Make-to-Stock Production System," Management Science, INFORMS, vol. 45(7), pages 980-994, July.
    • Handle: RePEc:inm:ormnsc:v:45:y:1999:i:7:p:980-994
    DOI: 10.1287/mnsc.45.7.980
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    References listed on IDEAS

    as
    1. Uday S. Karmarkar, 1987. "Lot Sizes, Lead Times and In-Process Inventories," Management Science, INFORMS, vol. 33(3), pages 409-418, March.
    2. Awi Federgruen & Ziv Katalan, 1996. "The Stochastic Economic Lot Scheduling Problem: Cyclical Base-Stock Policies with Idle Times," Management Science, INFORMS, vol. 42(6), pages 783-796, June.
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