Integrated inventory allocation and customer order admission control in a two-stage supply chain with make-to-stock and make-to-order facilities

Integrated inventory allocation and customer order admission control in a two-stage supply chain with make-to-stock and make-to-order facilities

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Article ID: iaor20106444
Volume: 35
Issue: 1
Start Page Number: 41
End Page Number: 50
Publication Date: Jan 2010
Journal: Journal of the Korean O.R. and MS Society
Authors:
Keywords: inventory: order policies
Abstract:

This paper considers a firm that operates make-to-stock and make-to-order facilities in successive stages. The make-to-stock facility produces components which are consumed by the external market demand as well as the internal make-to-order operation. The make-to-order facility processes customer orders with the option of acceptance or rejection. In this paper, we address the problem of coordinating how to allocate the capacity of the make-to-stock facility to internal and external demands and how to control incoming customer orders at the make-to-order facility so as to maximize the firm's profit subject to the system costs. To deal with this issue, we formulate the problem as a Markov decision process and characterize the structure of the optimal inventory allocation and customer order control. In a numerical experiment, we compare the performance of the optimal policy to the heuristic with static inventory allocation and admission control under different operating conditions of the system.

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