Comparison of capacity rationing policies for a make-to-order production system with two customer classes

Rajesh Piplani and Shudong Liu

International Journal of Industrial and Systems Engineering, 2014, vol. 16, issue 2, 223-237

Abstract: This paper examines capacity rationing policies in a make-to-order production system with two demand classes differing in profit margin and lead time sensitivity. Motivated by the complexity of the optimal rationing policy, an easy-to-implement state-independent critical (SIC) level policy is proposed. We also investigate the benefit of capacity rationing and effectiveness of the SIC policy. Results show that the optimal policy can significantly increase profit in many cases when compared with no-rationing, and the easy-to-implement SIC policy performs quite well compared with optimal rationing policies. Important managerial insights, including the effect of maximal acceptable lead times on the profit, are also obtained.

Keywords: production capacity management; dynamic programming; make-to-order; make-to-stock; heuristics; multiple demand classes; capacity rationing; MTO production systems; MTS; lead times. (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijisen:v:16:y:2014:i:2:p:223-237

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