Managing capacity and inventory jointly for multi-server make-to-stock queues

Josh Reed and Bo Zhang ()
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Josh Reed: Leonard N. Stern School of Business, Kaufman Management Center
Bo Zhang: IBM T.J. Watson Research Center

Queueing Systems: Theory and Applications, 2017, vol. 86, issue 1, No 3, 94 pages

Abstract: Abstract We consider joint capacity–inventory management for multi-server make-to-stock queues operating under a base stock policy. The number of servers corresponds to the capacity decision, and the base stock level is the inventory decision. Our goal is to minimize a combination of capacity, inventory, and backordering costs. We develop a square-root rule for the joint decision and justify the rule analytically in a many-server queue asymptotic framework. We demonstrate the accuracy of the square-root rule, first via our derivation and numerical assessment of a novel corrected diffusion approximation and then more directly by conducting extensive numerical experiments. Finally, we provide operational insights into the trade-offs involved in such joint management problems, through various analysis based on the square-root rule as well as a comparison with analogous results for single-server make-to-stock queues.

Keywords: Make-to-stock queue; Joint capacity–inventory management; Multi-server queue; Many-server asymptotics; Square-root rule; Diffusion approximation; 60K25; 90B05; 90B30; 34E05; 41A58 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11134-017-9519-0

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