Design and evaluation of a dynamic capacity apportionment procedure

Deploying a decision theory based approach, we develop a heuristic for short-term constrained capacity allocation to multiple-product classes in make-to-order manufacturing, attempting to maximize profit by discriminating between product classes. Efficacy of the heuristic is evaluated by comparing its performance to a base case and an upper bound, under a wide variety of operational conditions such as variations to profit attractiveness, capacity tightness, customer order size structure, customer order rate structure and demand coefficient of variation, considering three different scenarios of time-variant order rate of products. The results indicate that the heuristic is effective in obtaining increased profit when capacity is very tight and products are well differentiated. On average it yields an increase of 9.38% in total profit with a concomitant decrease of 0.85% in capacity utilization. The results of this study serve to highlight the value of proactively seeking to differentiate products, particularly when demand exceeds capacity.