Inventory and Production Decisions for an Assemble-to-Order System with Uncertain Demand and Limited Assembly Capacity.
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-
- [show abstract] [hide abstract]
ABSTRACT: Faced with stochastic demand, a firm may decide to assemble its products in advance or assemble them once actual demand is realized. In general, the production cost for items assembled in advance (AIA) is lower than for items assembled to order (ATO), because there is no need to expedite, and the production process can be planned and executed well in advance. On the other hand, items assembled in advance (AIA) for which there is no demand incur excessive and unnecessary assembly costs. The two policies, AIA and ATO, as well as a composite one, are compared and analyzed in light of these trade-offs. The composite model, which is shown as the dominating policy, is also extended to deal with the following two scenarios. The first assumes a loss of a fraction of the demand when demand cannot be satisfied from the shelf but rather through ATO. The second considers the effects of budget constraints on the total inventory cost. © 1995 John Wiley & Sons, Inc.Naval Research Logistics 10/2006; 42(5):861 - 872. · 0.69 Impact Factor