IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v52y2006i3p337-351.html
   My bibliography  Save this article

Optimal Component Stocking Policy for Assemble-to-Order Systems with Lead-Time-Dependent Component and Product Pricing

Author

Listed:
  • Vernon Ning Hsu

    (School of Management, George Mason University, Fairfax, Virginia 22030)

  • Chung Yee Lee

    (Department of Industrial Engineering and Logistics Management, Hong Kong University of Science and Technology, Hong Kong, China)

  • Kut C. So

    (The Paul Merage School of Business, University of California, Irvine, California 92697-3125)

Abstract

Short delivery time and the efficient management of component inventories are two crucial elements that determine the competitiveness of many contract assembly manufacturers, especially in the electronics industry. In this paper, we develop and analyze an optimization model to determine the optimal stocking quantities for components of an assemble-to-order product in an environment where demand is uncertain and the price for the final product and the costs of components depend on their delivery lead times. We provide an efficient solution procedure to solve the problem in which the manufacturer must deliver the full order quantity possibly in multiple shipments. We further extend our model to the situation where the manufacturer has the option of not delivering the full quantity but instead takes the penalty for a delivery shortage. We derive some analytical results that illustrate how different model parameters affect the optimal solution and provide useful insights for managing components in the assemble-to-order environment.

Suggested Citation

  • Vernon Ning Hsu & Chung Yee Lee & Kut C. So, 2006. "Optimal Component Stocking Policy for Assemble-to-Order Systems with Lead-Time-Dependent Component and Product Pricing," Management Science, INFORMS, vol. 52(3), pages 337-351, March.
    • Handle: RePEc:inm:ormnsc:v:52:y:2006:i:3:p:337-351
    DOI: 10.1287/mnsc.1050.0438
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1050.0438
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1050.0438?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Charles P. Schmidt & Steven Nahmias, 1985. "Optimal Policy for a Two-Stage Assembly System under Random Demand," Operations Research, INFORMS, vol. 33(5), pages 1130-1145, October.
    2. Jing-Sheng Song, 2002. "Order-Based Backorders and Their Implications in Multi-Item Inventory Systems," Management Science, INFORMS, vol. 48(4), pages 499-516, April.
    3. Tamer Boyaci & Saibal Ray, 2003. "Product Differentiation and Capacity Cost Interaction in Time and Price Sensitive Markets," Manufacturing & Service Operations Management, INFORMS, vol. 5(1), pages 18-36, May.
    4. Yunzeng Wang & Yigal Gerchak, 2003. "Capacity Games in Assembly Systems with Uncertain Demand," Manufacturing & Service Operations Management, INFORMS, vol. 5(3), pages 252-267, January.
    5. So, Kut C. & Song, Jing-Sheng, 1998. "Price, delivery time guarantees and capacity selection," European Journal of Operational Research, Elsevier, vol. 111(1), pages 28-49, November.
    6. Fujiwara, Okitsugu & Sedarage, Dayani, 1997. "An optimal (Q,r) policy for a multipart assembly system under stochastic part procurement lead times," European Journal of Operational Research, Elsevier, vol. 100(3), pages 550-556, August.
    7. Phillip J. Lederer & Lode Li, 1997. "Pricing, Production, Scheduling, and Delivery-Time Competition," Operations Research, INFORMS, vol. 45(3), pages 407-420, June.
    8. Jing-Sheng Song & Candace A. Yano & Panupol Lerssrisuriya, 2000. "Contract Assembly: Dealing with Combined Supply Lead Time and Demand Quantity Uncertainty," Manufacturing & Service Operations Management, INFORMS, vol. 2(3), pages 287-296, July.
    9. Kut C. So, 2000. "Price and Time Competition for Service Delivery," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 392-409, April.
    10. Jing-Sheng Song & Susan H. Xu & Bin Liu, 1999. "Order-Fulfillment Performance Measures in an Assemble-to-Order System with Stochastic Leadtimes," Operations Research, INFORMS, vol. 47(1), pages 131-149, February.
    11. Yingdong Lu & Jing-Sheng Song & David D. Yao, 2003. "Order Fill Rate, Leadtime Variability, and Advance Demand Information in an Assemble-to-Order System," Operations Research, INFORMS, vol. 51(2), pages 292-308, April.
    12. Jing-Sheng Song, 1998. "On the Order Fill Rate in a Multi-Item, Base-Stock Inventory System," Operations Research, INFORMS, vol. 46(6), pages 831-845, December.
    13. Kaj Rosling, 1989. "Optimal Inventory Policies for Assembly Systems Under Random Demands," Operations Research, INFORMS, vol. 37(4), pages 565-579, August.
    14. Gérard P. Cachon & Patrick T. Harker, 2002. "Competition and Outsourcing with Scale Economies," Management Science, INFORMS, vol. 48(10), pages 1314-1333, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ke Fu & Vernon N. Hsu & Chung-Yee Lee, 2009. "Note--Optimal Component Acquisition for a Single-Product, Single-Demand Assemble-to-Order Problem with Expediting," Manufacturing & Service Operations Management, INFORMS, vol. 11(2), pages 229-236, December.
    2. Xiang Fang & Kut C. So & Yunzeng Wang, 2008. "Component Procurement Strategies in Decentralized Assemble-to-Order Systems with Time-Dependent Pricing," Management Science, INFORMS, vol. 54(12), pages 1997-2011, December.
    3. Yeu-Shiang Huang & Hau-Wen Lo & Jyh-Wen Ho, 2021. "Effects of component commonality and perishability on inventory control in assemble-to-order systems," Operational Research, Springer, vol. 21(1), pages 205-229, March.
    4. Kai Huang, 2014. "Benchmarking non-first-come-first-served component allocation in an assemble-to-order system," Annals of Operations Research, Springer, vol. 223(1), pages 217-237, December.
    5. Zhai, Yue & Hua, Guowei & Cheng, Meng & Cheng, T.C.E., 2023. "Production lead-time hedging and order allocation in an MTO supply chain," European Journal of Operational Research, Elsevier, vol. 311(3), pages 887-905.
    6. Fu, Ke & Xu, Jiayan & Miao, Zhaowei, 2013. "Newsvendor with multiple options of expediting," European Journal of Operational Research, Elsevier, vol. 226(1), pages 94-99.
    7. Fei Zhang & Zailin Guan & Li Zhang & Yanyan Cui & Pengxing Yi & Saif Ullah, 2019. "Inventory management for a remanufacture-to-order production with multi-components (parts)," Journal of Intelligent Manufacturing, Springer, vol. 30(1), pages 59-78, January.
    8. Gunasekaran, Angappa & Ngai, Eric W.T., 2009. "Modeling and analysis of build-to-order supply chains," European Journal of Operational Research, Elsevier, vol. 195(2), pages 319-334, June.
    9. Atan, Zümbül & Ahmadi, Taher & Stegehuis, Clara & Kok, Ton de & Adan, Ivo, 2017. "Assemble-to-order systems: A review," European Journal of Operational Research, Elsevier, vol. 261(3), pages 866-879.
    10. Zhan Pang & Frank Y. Chen & Youyi Feng, 2012. "Technical Note---A Note on the Structure of Joint Inventory-Pricing Control with Leadtimes," Operations Research, INFORMS, vol. 60(3), pages 581-587, June.
    11. Vernon Ning Hsu & Chung Yee Lee & Kut C. So, 2007. "Managing components for assemble‐to‐order products with lead‐time‐dependent pricing: The full‐shipment model," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(5), pages 510-523, August.
    12. Changwen Li & Bin Cao & Yong-Wu Zhou & T. C. Edwin Cheng, 2023. "Pricing, coalition stability, and profit allocation in the pull assembly supply chains under competition," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 45(3), pages 977-1011, September.
    13. Yuhong He & Shuya Yin, 2015. "Joint Selling of Complementary Components Under Brand and Retail Competition," Manufacturing & Service Operations Management, INFORMS, vol. 17(4), pages 470-479, October.
    14. Xiao, Yongbo & Chen, Jian & Lee, Chung-Yee, 2010. "Optimal decisions for assemble-to-order systems with uncertain assembly capacity," International Journal of Production Economics, Elsevier, vol. 123(1), pages 155-165, January.
    15. Ke Fu & Vernon Ning Hsu & Chung-Yee Lee, 2006. "Inventory and Production Decisions for an Assemble-to-Order System with Uncertain Demand and Limited Assembly Capacity," Operations Research, INFORMS, vol. 54(6), pages 1137-1150, December.
    16. Susan H. Xu & Zhaolin Li, 2007. "Managing a Single-Product Assemble-to-Order System with Technology Innovations," Management Science, INFORMS, vol. 53(9), pages 1467-1485, September.
    17. Shen, Houcai & Pang, Zhan & Cheng, T.C.E., 2011. "The component procurement problem for the loss-averse manufacturer with spot purchase," International Journal of Production Economics, Elsevier, vol. 132(1), pages 146-153, July.
    18. Zhang, Guoquan & Shang, Jennifer & Li, Wenli, 2011. "Collaborative production planning of supply chain under price and demand uncertainty," European Journal of Operational Research, Elsevier, vol. 215(3), pages 590-603, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liming Liu & Mahmut Parlar & Stuart X. Zhu, 2007. "Pricing and Lead Time Decisions in Decentralized Supply Chains," Management Science, INFORMS, vol. 53(5), pages 713-725, May.
    2. Weixin Shang & Liming Liu, 2011. "Promised Delivery Time and Capacity Games in Time-Based Competition," Management Science, INFORMS, vol. 57(3), pages 599-610, March.
    3. de Kok, Ton & Grob, Christopher & Laumanns, Marco & Minner, Stefan & Rambau, Jörg & Schade, Konrad, 2018. "A typology and literature review on stochastic multi-echelon inventory models," European Journal of Operational Research, Elsevier, vol. 269(3), pages 955-983.
    4. Mustafa K. Doğru & Martin I. Reiman & Qiong Wang, 2010. "A Stochastic Programming Based Inventory Policy for Assemble-to-Order Systems with Application to the W Model," Operations Research, INFORMS, vol. 58(4-part-1), pages 849-864, August.
    5. Tamer Boyaci & Saibal Ray, 2003. "Product Differentiation and Capacity Cost Interaction in Time and Price Sensitive Markets," Manufacturing & Service Operations Management, INFORMS, vol. 5(1), pages 18-36, May.
    6. Yao Zhao, 2008. "Evaluation and Optimization of Installation Base-Stock Policies in Supply Chains with Compound Poisson Demand," Operations Research, INFORMS, vol. 56(2), pages 437-452, April.
    7. Huang, Yeu-Shiang & Chen, Si-Hen & Ho, Jyh-Wen, 2013. "A study on pricing and delivery strategy for e-retailing systems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 59(C), pages 71-84.
    8. Yao Zhao & David Simchi-Levi, 2006. "Performance Analysis and Evaluation of Assemble-to-Order Systems with Stochastic Sequential Lead Times," Operations Research, INFORMS, vol. 54(4), pages 706-724, August.
    9. Ana Bušić & Ingrid Vliegen & Alan Scheller-Wolf, 2012. "Comparing Markov Chains: Aggregation and Precedence Relations Applied to Sets of States, with Applications to Assemble-to-Order Systems," Mathematics of Operations Research, INFORMS, vol. 37(2), pages 259-287, May.
    10. Qian, Li, 2014. "Market-based supplier selection with price, delivery time, and service level dependent demand," International Journal of Production Economics, Elsevier, vol. 147(PC), pages 697-706.
    11. Ülkü, M. Ali & Bookbinder, James H., 2012. "Optimal quoting of delivery time by a third party logistics provider: The impact of shipment consolidation and temporal pricing schemes," European Journal of Operational Research, Elsevier, vol. 221(1), pages 110-117.
    12. Gérard P. Cachon & Fuqiang Zhang, 2007. "Obtaining Fast Service in a Queueing System via Performance-Based Allocation of Demand," Management Science, INFORMS, vol. 53(3), pages 408-420, March.
    13. Zhu, Stuart X., 2015. "Integration of capacity, pricing, and lead-time decisions in a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 164(C), pages 14-23.
    14. Jing-Sheng Song & David D. Yao, 2002. "Performance Analysis and Optimization of Assemble-to-Order Systems with Random Lead Times," Operations Research, INFORMS, vol. 50(5), pages 889-903, October.
    15. Alexandar Angelus & Özalp Özer, 2016. "Knowledge You Can Act on: Optimal Policies for Assembly Systems with Expediting and Advance Demand Information," Operations Research, INFORMS, vol. 64(6), pages 1338-1371, December.
    16. Saif Benjaafar & Mohsen ElHafsi, 2006. "Production and Inventory Control of a Single Product Assemble-to-Order System with Multiple Customer Classes," Management Science, INFORMS, vol. 52(12), pages 1896-1912, December.
    17. Yingdong Lu & Jing-Sheng Song & Yao Zhao, 2010. "No-Holdback Allocation Rules for Continuous-Time Assemble-to-Order Systems," Operations Research, INFORMS, vol. 58(3), pages 691-705, June.
    18. Yingdong Lu & Jing-Sheng Song, 2005. "Order-Based Cost Optimization in Assemble-to-Order Systems," Operations Research, INFORMS, vol. 53(1), pages 151-169, February.
    19. Hoen, K.M.R. & Güllü, R. & van Houtum, G.J. & Vliegen, I.M.H., 2011. "A simple and accurate approximation for the order fill rates in lost-sales Assemble-to-Order systems," International Journal of Production Economics, Elsevier, vol. 133(1), pages 95-104, September.
    20. Gregory A. DeCroix & Jing-Sheng Song & Paul H. Zipkin, 2009. "Managing an Assemble-to-Order System with Returns," Manufacturing & Service Operations Management, INFORMS, vol. 11(1), pages 144-159, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:52:y:2006:i:3:p:337-351. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.