Influence of order acceptance policies on optimal capacity and inventory.
K. Altendorfer, S. Minner - Influence of order acceptance policies on optimal capacity and inventory. - EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, Vol. 243, No. 2, 2015, pp. 555-565
In this paper the influence of applying two different order acceptance policies on optimal capacity investment is discussed. Equations for state probabilities, order acceptance rate, WIP, FGI, backorders and service level are developed for a system with stochastic customer required lead times applying queuing methodology. An optimization problem minimizing capacity, WIP, FGI, backorder and lost sales cost (for rejected orders) in a single stage MTO production system is presented. The system is modelled as M/M/1 queue with queue length and random customer required lead time dependent input rates. For the optimization problem, which cannot be solved explicitly, a solution heuristic is developed and a broad numerical study is conducted. The numerical study shows that allowing the customer to know the queue state and - based on this knowledge - decide whether to state an order can have positive or negative influences on the overall costs depending on the customer’s service level target. Furthermore, the study shows that a high cost reduction potential exists for simultaneously optimizing capacity investment and order acceptance policy if the production system can decide whether to accept an order.