Article ID: | iaor20081205 |
Country: | United States |
Volume: | 55 |
Issue: | 1 |
Start Page Number: | 56 |
End Page Number: | 74 |
Publication Date: | Jan 2007 |
Journal: | Operations Research |
Authors: | Tayur Sridhar, Kapuscinski Roman |
Keywords: | heuristics, programming: dynamic |
We study a finite-horizon discrete-time model of due-date setting (equivalently, reserving capacity) in a make-to-order setting, where demands arrive from two different classes of customers. Demands in each period are stochastic. The two customer classes penalize with different margins the lead times quoted to them, which (once quoted) are to be satisfied reliably. We first derive the optimal policy for reserving capacity that maps to quoted due dates. We use the insights from its structure to develop a novel approximation that provides near-optimal solutions quickly. Currently available heuristics are tested and are found to be considerably less effective than the above approximation.