Optimal Control of High-Volume Assemble-to-Order Systems with Delay Constraints

Stanford GSB Research Paper No. 1891

35 Pages Posted: 31 May 2005

See all articles by Erica L. Plambeck

Erica L. Plambeck

Stanford Graduate School of Business

Amy R. Ward

Georgia Institute of Technology - The H. Milton Stewart School of Industrial & Systems Engineering (ISyE)

Date Written: January 2005

Abstract

We consider an assemble-to-order system with a high volume of prospective customers arriving per unit time. A companion paper established that with optimal product prices, component production capacity, and sequencing of orders for assembly, the system can be approximated by a diffusion process with dimension equal to the number of components (rather than the number of components plus the number of products). This state space collapse allows us to incorporate product-specific delay constraints and dynamic control of component inventory. First, we choose product prices, component production capacities, and propose a discrete review policy for expediting components and sequencing orders for assembly that satisfies delay constraints perfectly, and is asymptotically optimal when expediting is very costly. We also propose a simpler version of this policy, based on the backlog of demand for each component, that asymptotically complies with delay guarantees and achieves the same limiting expected discounted profit. Second, we numerically solve an approximating diffusion control problem for systems with both expediting and salvaging of components, and highlight useful structural properties.

Keywords: Operations management, queuing systems, stochastic modeling, supply chain

Suggested Citation

Plambeck, Erica L. and Ward, Amy R., Optimal Control of High-Volume Assemble-to-Order Systems with Delay Constraints (January 2005). Stanford GSB Research Paper No. 1891, Available at SSRN: https://ssrn.com/abstract=729251 or http://dx.doi.org/10.2139/ssrn.729251

Erica L. Plambeck (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Amy R. Ward

Georgia Institute of Technology - The H. Milton Stewart School of Industrial & Systems Engineering (ISyE) ( email )

765 Ferst Drive
Atlanta, GA 30332-0205
United States

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