On Production and Subcontracting Strategies for Manufacturers with Limited Capacity and Backlog-Dependent Demand
Name
OR-354-01.pdf
Size
3.58 MB
Format
Adobe PDF
Checksum (MD5)
b72743457b32f0fbb681798d650d583d
Author(s)
Tan, Barli
Gershwin, Stanley B.
Date Issued
May 2001
Publisher
Massachusetts Institute of Technology, Operations Research Center
Series/Report no.
Operations Research Center Working Paper;OR 354-01
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, the 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 own 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. The subcontractors represent a set of capacity options, and we calculate the values of these options.
MIT Department
Massachusetts Institute of Technology. Operations Research Center
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