Robustness of capacity rationing policies

Robustness of capacity rationing policies

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Article ID: iaor20001264
Country: Netherlands
Volume: 115
Issue: 2
Start Page Number: 328
End Page Number: 338
Publication Date: Jun 1999
Journal: European Journal of Operational Research
Authors: , ,
Keywords: demand, decision theory, scheduling
Abstract:

A recent paper discusses a capacity rationing policy that allows make-to-order manufacturing firms encountering expected total demand in excess of available capacity to discriminate between two classes of products, one yielding a higher profit contribution per unit of capacity allocated to it than the other. The result is a selective rejection of orders for the class with lower unit contribution, yielding an increase in total profit when compared to a base case that implements no capacity rationing. Implementation of the policy requires forecasts of demand parameters for both product classes. In this paper we test the sensitivity of the capacity rationing policy to forecast errors in these parameters. The results indicate that, on average, the rationing policy is quite robust in improving profit even when actual demands are approximately twenty percent different from forecast values.

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