IDEAS home Printed from https://ideas.repec.org/a/inm/oropre/v54y2006i6p1137-1150.html
   My bibliography  Save this article

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

Author

Listed:
  • Ke Fu

    (Lingnan College, Sun Yat-sen University, Guangzhou, China 510275)

  • 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, Clear Water Bay, Kowloon, Hong Kong, China)

Abstract

This paper considers an inventory and production-planning problem for a contract manufacturer 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 insufficient 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, so that the manufacturer can outsource part of his production to an external facility that also has limited capacity. We establish structural properties of optimal solutions and develop efficient solution procedures for the proposed problems. We also provide sensitivity analysis of the optimal decisions, and some managerial insights.

Suggested Citation

  • 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.
    • Handle: RePEc:inm:oropre:v:54:y:2006:i:6:p:1137-1150
    DOI: 10.1287/opre.1060.0335
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/opre.1060.0335
    Download Restriction: no
    File URL: https://libkey.io/10.1287/opre.1060.0335?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. Kevin H. Shang & Jing-Sheng Song, 2003. "Newsvendor Bounds and Heuristic for Optimal Policies in Serial Supply Chains," Management Science, INFORMS, vol. 49(5), pages 618-638, May.
    2. Paul Glasserman & Yashan Wang, 1998. "Leadtime-Inventory Trade-Offs in Assemble-to-Order Systems," Operations Research, INFORMS, vol. 46(6), pages 858-871, December.
    3. 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.
    4. 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.
    5. Rema Hariharan & Paul Zipkin, 1995. "Customer-Order Information, Leadtimes, and Inventories," Management Science, INFORMS, vol. 41(10), pages 1599-1607, October.
    6. Chengbin Chu & Jean‐Marie Proth & Xiaolan Xie, 1993. "Supply management in assembly systems," Naval Research Logistics (NRL), John Wiley & Sons, vol. 40(7), pages 933-949, December.
    7. Jayashankar M. Swaminathan & Sridhar R. Tayur, 1998. "Managing Broader Product Lines through Delayed Differentiation Using Vanilla Boxes," Management Science, INFORMS, vol. 44(12-Part-2), pages 161-172, December.
    8. Kaj Rosling, 1989. "Optimal Inventory Policies for Assembly Systems Under Random Demands," Operations Research, INFORMS, vol. 37(4), pages 565-579, August.
    9. 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.
    10. Amit Eynan & Meir J. Rosenblatt, 1995. "Assemble to order and assemble in advance in a single‐period stochastic environment," Naval Research Logistics (NRL), John Wiley & Sons, vol. 42(5), pages 861-872, August.
    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. Jun Tong & Xiaotao Zhou & Lei Lei, 2024. "Priority-Based Capacity Allocation for Hierarchical Distributors with Limited Production Capacity," Mathematics, MDPI, vol. 12(14), pages 1-17, July.
    2. Oh, Yosep & Behdad, Sara, 2017. "Simultaneous reassembly and procurement planning in assemble-to-order remanufacturing systems," International Journal of Production Economics, Elsevier, vol. 184(C), pages 168-178.
    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. 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.
    5. Tang, Dong, 2011. "Managing finished-goods inventory under capacitated delayed differentiation," Omega, Elsevier, vol. 39(5), pages 481-492, October.
    6. Fan, Di & Liang, Tianheng & Yeung, Andy C.L. & Zhang, Haomin, 2020. "The impact of capacity-reduction initiatives on the stock market value of Chinese manufacturing firms," International Journal of Production Economics, Elsevier, vol. 223(C).
    7. 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.
    8. 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.
    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. 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.
    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. 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.
    13. Song, Zhe & Kusiak, Andrew, 2010. "Mining Pareto-optimal modules for delayed product differentiation," European Journal of Operational Research, Elsevier, vol. 201(1), pages 123-128, February.
    14. Fernando Bernstein & Gregory A. DeCroix & Yulan Wang, 2011. "The Impact of Demand Aggregation Through Delayed Component Allocation in an Assemble-to-Order System," Management Science, INFORMS, vol. 57(6), pages 1154-1171, June.
    15. Svoboda, Josef & Minner, Stefan & Yao, Man, 2021. "Typology and literature review on multiple supplier inventory control models," European Journal of Operational Research, Elsevier, vol. 293(1), pages 1-23.
    16. Süleyman Demirel & Izak Duenyas & Roman Kapuscinski, 2015. "Production and Inventory Control for a Make-to-Stock/Calibrate-to-Order System with Dedicated and Shared Resources," Operations Research, INFORMS, vol. 63(4), pages 823-839, August.
    17. 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. 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.
    2. 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.
    3. 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.
    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. 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.
    6. 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.
    7. 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.
    8. 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.
    9. Ramesh Bollapragada & Uday S. Rao & Jun Zhang, 2004. "Managing Inventory and Supply Performance in Assembly Systems with Random Supply Capacity and Demand," Management Science, INFORMS, vol. 50(12), pages 1729-1743, December.
    10. Hausman, Warren H. & Lee, Hau L. & Zhang, Alex X., 1998. "Joint demand fulfillment probability in a multi-item inventory system with independent order-up-to policies," European Journal of Operational Research, Elsevier, vol. 109(3), pages 646-659, September.
    11. Willem van Jaarsveld & Alan Scheller-Wolf, 2015. "Optimization of Industrial-Scale Assemble-to-Order Systems," INFORMS Journal on Computing, INFORMS, vol. 27(3), pages 544-560, August.
    12. Noel Watson & Yu-Sheng Zheng, 2005. "Decentralized Serial Supply Chains Subject to Order Delays and Information Distortion: Exploiting Real-Time Sales Data," Manufacturing & Service Operations Management, INFORMS, vol. 7(2), pages 152-168, May.
    13. Albrecht, Martin, 2014. "Determining near optimal base-stock levels in two-stage general inventory systems," European Journal of Operational Research, Elsevier, vol. 232(2), pages 342-349.
    14. Shi Chen & Hau Lee, 2017. "Incentive Alignment and Coordination of Project Supply Chains," Management Science, INFORMS, vol. 63(4), pages 1011-1025, April.
    15. Sandun C. Perera & Suresh P. Sethi, 2023. "A survey of stochastic inventory models with fixed costs: Optimality of (s, S) and (s, S)‐type policies—Discrete‐time case," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 131-153, January.
    16. Jing-Sheng Song & Yao Zhao, 2009. "The Value of Component Commonality in a Dynamic Inventory System with Lead Times," Manufacturing & Service Operations Management, INFORMS, vol. 11(3), pages 493-508, March.
    17. Yimin Wang & Brian Tomlin, 2009. "To wait or not to wait: Optimal ordering under lead time uncertainty and forecast updating," Naval Research Logistics (NRL), John Wiley & Sons, vol. 56(8), pages 766-779, December.
    18. Garg, D. & Narahari, Y. & Viswanadham, N., 2006. "Achieving sharp deliveries in supply chains through variance pool allocation," European Journal of Operational Research, Elsevier, vol. 171(1), pages 227-254, May.
    19. Guillermo Gallego & Özalp Özer, 2003. "Optimal Replenishment Policies for Multiechelon Inventory Problems Under Advance Demand Information," Manufacturing & Service Operations Management, INFORMS, vol. 5(2), pages 157-175, February.
    20. Li, Xiuhui & Wang, Qinan, 2007. "Coordination mechanisms of supply chain systems," European Journal of Operational Research, Elsevier, vol. 179(1), pages 1-16, May.

    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:oropre:v:54:y:2006:i:6:p:1137-1150. 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.