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: | Kim Eungab |
Keywords: | inventory: order policies |
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.