Optimal Component Stocking Policy for Assemble-to-Order Systems with Lead-Time-Dependent Component and Product Pricing

Vernon Ning Hsu (), Chung Yee Lee () and Kut C. So ()
Additional contact information
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, Hong Kong, China
Kut C. So: The Paul Merage School of Business, University of California, Irvine, California 92697-3125

Management Science, 2006, vol. 52, issue 3, 337-351

Abstract: Short delivery time and the efficient management of component inventories are two crucial elements that determine the competitiveness of many contract assembly manufacturers, especially in the electronics industry. In this paper, we develop and analyze an optimization model to determine the optimal stocking quantities for components of an assemble-to-order product in an environment where demand is uncertain and the price for the final product and the costs of components depend on their delivery lead times. We provide an efficient solution procedure to solve the problem in which the manufacturer must deliver the full order quantity possibly in multiple shipments. We further extend our model to the situation where the manufacturer has the option of not delivering the full quantity but instead takes the penalty for a delivery shortage. We derive some analytical results that illustrate how different model parameters affect the optimal solution and provide useful insights for managing components in the assemble-to-order environment.

Keywords: inventory management; assemble-to-order manufacturing; optimal stocking policies; lead-time management (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.1050.0438 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:52:y:2006:i:3:p:337-351

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().