Inventory and Production Decisions for an Assemble-to-Order System with Uncertain Demand and Limited Assembly Capacity.

Operations Research 01/2006; 54:1137-1150. DOI: 10.1287/opre.1060.0335
Source: DBLP

ABSTRACT Abstract This paper considers an inventory and production planning problem for a contract manu- facturer who anticipates an order of a single product but with uncertain quantity. To meet the challenges of long component procurement lead times and limited assembly capacity, which may render production time insucient,to assemble total order quantity, the manufacturer may need to procure components or even assemble some quantities of the final product before receiving the confirmation of the actual order quantity. We present profit-maximization models that make optimal inventory and production decisions in the above assemble-to-order environment. We also consider the option of outsourcing that the manufacturer can outsource part of his produc- tion to an external facility which also has limited capacity. We establish structural properties of optimal solutions and develop ecient,solution procedures for the proposed problems. We also provide sensitivity analysis of the optimal decisions and some managerial insights. Subject classifications: Inventory/production: assemble-to-order systems, component procure- ment lead times, demand uncertainty, capacity management, outsourcing. This research is supported in part by Hong Kong RGC Earmark Grant HKUST 6153/04E and the Doctoral Dis-

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