Timing order fulfillment of capital goods under a constrained capacity

Qing Li (), Qi-Ming He () and Xiaoli Wu ()
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Qing Li: Hong Kong University of Science and Technology
Qi-Ming He: University of Waterloo
Xiaoli Wu: South China University of Technology

Annals of Operations Research, 2016, vol. 241, issue 1, No 18, 456 pages

Abstract: Abstract This paper studies the order-fulfillment process of a supplier producing multiple customized capital goods. The times when orders are confirmed by customers are random. The supplier can only work on one product at any time due to capacity constraints. The supplier must determine the optimal time to start the process for each order so that the total expected cost of having the goods ready before or after their orders are confirmed is minimized. We formulate this problem as a discrete time Markov decision process. The optimal policy is complex in general. It has a threshold-type structure and can be fully characterized only for some special cases. Based on our formulation, we compute the optimal policy and quantify the value of jointly managing the order fulfillment processes of multiple orders and the value of taking into account demand arrival time uncertainty.

Keywords: Supply chain management; Markov decision process; Dynamic programming; Multi-item production/inventory; Stopping time (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s10479-013-1311-x

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