Article ID: | iaor20032220 |
Country: | United States |
Volume: | 48 |
Issue: | 11 |
Start Page Number: | 1486 |
End Page Number: | 1501 |
Publication Date: | Nov 2002 |
Journal: | Management Science |
Authors: | Dallery Yves, Karaesmen Fikri, Vricourt Francis de |
Keywords: | production, programming: dynamic, queues: applications |
We consider a capacitated supply system that produces a single item that is demanded by several classes of customers. Each customer class may have a different backorder cost, so stock allocation arises as a key decision problem. We model the supply system as a multicustomer make-to-stock queue. Using dynamic programming, we show that the optimal allocation policy has a simple and intuitive structure. In addition, we present an efficient algorithm to compute the parameters of this optimal allocation policy. Finally, for a typical supply chain design problem, we illustrate that ignoring the stock allocation dimension – a frequently encountered simplifying assumption – can lead to incorrect managerial decisions.