Allocating Production Capacity Among Multiple Products

Paul Glasserman
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Paul Glasserman: Columbia Business School, New York, New York

Operations Research, 1996, vol. 44, issue 5, 724-734

Abstract: We consider the problem of allocating production capacity among multiple items, assuming that a fixed proportion of overall capacity can be dedicated exclusively to the production of each item. Given a capacity allocation, production of each item follows a base-stock policy, i.e., each demand triggers a replenishment order to restore safety stocks to target levels. We present procedures for choosing base-stock levels and capacity allocations that are asymptotically optimal. Our objective is to minimize holding and backorder costs, or to minimize holding costs subject to a service-level constraint. Asymptotic optimality refers to large backorder penalties or stringent service-level constraints. Numerical results indicate that our rules perform very well even far from the asymptotic regime. A further approximation step results in allocation rules based on heavy-traffic limits; these, too, perform well.

Keywords: inventory/production approximation; asymptotically optimal allocations; probability; stochastic model applications; production allocation; programming; resource allocation (search for similar items in EconPapers)
Date: 1996
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