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Postponable Acceptance and Assignment: A Stochastic Dynamic Programming Approach

Author

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  • Keumseok Kang

    (College of Business, Florida International University, Miami, Florida 33174)

  • J. George Shanthikumar

    (Krannert School of Management, Purdue University, West Lafayette, Indiana 47907)

  • Kemal Altinkemer

    (Krannert School of Management, Purdue University, West Lafayette, Indiana 47907)

Abstract

We study a new dynamic order acceptance and assignment problem of a make-to-order manufacturing or service system that produces heterogeneous products or services using heterogeneous servers. Unlike traditional dynamic order acceptance and assignment problems, in our settings the system can strategically postpone acceptance and assignment decisions for orders in hand. The system does this while waiting for more profitable orders to come and/or more productive servers to become available, with the risk of losing orders in hand, low server utilization, and high waiting penalties. We formulate this problem as a stochastic dynamic program, characterize the structure of the optimal policy, and discuss managerial insights gained from the optimal policy. The paper also provides a methodological contribution by finding general structural properties and their preservation conditions, which can be reused in related future operations management studies.

Suggested Citation

  • Keumseok Kang & J. George Shanthikumar & Kemal Altinkemer, 2016. "Postponable Acceptance and Assignment: A Stochastic Dynamic Programming Approach," Manufacturing & Service Operations Management, INFORMS, vol. 18(4), pages 493-508, October.
    • Handle: RePEc:inm:ormsom:v:18:y:2016:i:4:p:493-508
    DOI: 10.1287/msom.2016.0581
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    References listed on IDEAS

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