An integrated approach to inventory and flexible capacity management subject to fixed costs and non-stationary stochastic demand

An integrated approach to inventory and flexible capacity management subject to fixed costs and non-stationary stochastic demand

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Article ID: iaor200950403
Country: Germany
Volume: 31
Issue: 2
Start Page Number: 337
End Page Number: 360
Publication Date: Apr 2009
Journal: OR Spectrum
Authors: ,
Keywords: planning
Abstract:

In a manufacturing system with flexible capacity, inventory management can be coupled with capacity management in order to handle fluctuations in demand more effectively. Typical examples include the effective use of temporary workforce and overtime production. In this paper, we discuss an integrated model for inventory and flexible capacity management under non–stationary stochastic demand with the possibility of positive fixed costs, both for initiating production and for using contingent capacity. We analyze the characteristics of the optimal policies for the integrated problem. We also evaluate the value of utilizing flexible capacity under different settings, which enable us to develop managerial insights.

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