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Integrated capacity and inventory decisions

In: Operations Research Proceedings 2011

Author

Listed:
  • N. P. Dellaert

    (Technische Universiteit Eindhoven)

  • S. D. P. Flapper

    (Technische Universiteit Eindhoven)

  • T. Tan

    (Technische Universiteit Eindhoven)

  • J. Jeunet

    (University Paris-Dauphine)

Abstract

This paper deals with the simultaneous acquisition of capacity and material in a situation with uncertain demand, with non-zero lead-times for the supply of both material and capacity. Although there is a lot of literature on the time-phased acquisition of capacity and material, most of this literature focuses on one of the two decisions. By using a dynamic programming formulation, we describe the optimal balance between using safety stocks and contingent workforce for various lead-time situations. We compare the cost ingredients of the optimal strategy with the standard inventory approach that neglects capacity restrictions in the decision. The experimental study shows that co-ordination of both decisions in the optimal strategy leads to cost reductions of around 10%.We also derive characteristics of the optimal strategy that we expect to provide a thorough basis for operational decision making.

Suggested Citation

  • N. P. Dellaert & S. D. P. Flapper & T. Tan & J. Jeunet, 2012. "Integrated capacity and inventory decisions," Operations Research Proceedings, in: Diethard Klatte & Hans-Jakob Lüthi & Karl Schmedders (ed.), Operations Research Proceedings 2011, edition 127, pages 463-468, Springer.
    • Handle: RePEc:spr:oprchp:978-3-642-29210-1_74
    DOI: 10.1007/978-3-642-29210-1_74
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