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Managing components for assemble‐to‐order products with lead‐time‐dependent pricing: The full‐shipment model

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  • Vernon Ning Hsu
  • Chung Yee Lee
  • Kut C. So

Abstract

We study a component inventory planning problem in an assemble‐to‐order environment faced by many contract manufacturers in which both quick delivery and efficient management of component inventory are crucial for the manufacturers to achieve profitability in a highly competitive market. Extending a recent study in a similar problem setting by the same authors, we analyze an optimization model for determining the optimal component stocking decision for a contract manufacturer facing an uncertain future demand, where product price depends on the delivery times. In contrast to our earlier work, this paper considers the situation where the contract manufacturer needs to deliver the full order quantity in one single shipment. This delivery requirement is appropriate for many industries, such as the garment and toy industries, where the economies of scale in transportation is essential. We develop efficient solution procedures for solving this optimization problem. We use our model results to illustrate how the different model parameters affect the optimal solution. We also compare the results under this full‐shipment model with those from our earlier work that allows for multiple partial shipments. © 2007 Wiley Periodicals, Inc. Naval Research Logistics, 2007

Suggested Citation

  • 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.
    • Handle: RePEc:wly:navres:v:54:y:2007:i:5:p:510-523
    DOI: 10.1002/nav.20223
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
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