Article ID: | iaor200973327 |
Volume: | 57 |
Issue: | 6 |
Start Page Number: | 1438 |
End Page Number: | 1450 |
Publication Date: | Nov 2009 |
Journal: | Operations Research |
Authors: | Maglaras Costis, Besbes Omar |
Keywords: | make-to-order |
We consider a revenue-maximizing make-to-order manufacturer that serves a market of price- and delay-sensitive customers and operates in an environment in which the market size varies stochastically over time. A key feature of our analysis is that no model is assumed for the evolution of the market size. We analyze two main settings: (i) the size of the market is observable at any point in time; and (ii) the size of the market is not observable and hence cannot be used for decision making. We focus on high-volume systems that are characterized by large processing capacities and market sizes, and where the latter fluctuate on a slower timescale than that of the underlying production system dynamics. We develop an approach to tackle such problems that is based on an asymptotic analysis and that yields near-optimal policy recommendations for the original system via the solution of a stochastic fluid model.