Production and Subcontracting Strategies for Manufacturers with Limited Capacity and Volatile Demand

Barış Tan () and Stanley Gershwin ()

Annals of Operations Research, 2004, vol. 125, issue 1, 205-232

Abstract: We study a manufacturing firm that builds a product to stock to meet a random demand. If there is a positive surplus of finished goods, customers make their purchases without delay and leave. If there is a backlog, the customers are sensitive to the quoted lead time and some choose not to order if they feel that the lead time is excessive. A set of subcontractors, who have different costs and capacities, are available to supplement the firm's production capacity. We derive a feedback policy that determines the production rate and the rate at which the subcontractors are requested to deliver products. The performance of the system, when it is managed according to this policy, is evaluated. Copyright Kluwer Academic Publishers 2004

Keywords: subcontracting; optimal flow control; hedging policy; production systems (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1023/B:ANOR.0000011192.23903.7f

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