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Integrated Demand and Production Control for the Competition-based Component and Cooperation-based End Item  

Kim, Eun-Gab (College of Business Administration, Ewha Womans University)
Publication Information
IE interfaces / v.22, no.4, 2009 , pp. 368-375 More about this Journal
Abstract
This paper considers a two-stage supply system consisting of two make-to-stock facilities. The facility in the first stage produces a single type of component in anticipation of future demands from the market and the end item production while the facility in the second stage produces the end item in anticipation of future demands from the OEM customers. The facility in the first stage has the option of to accept or reject each incoming demand from the market. In this paper, we address the problem of how to control the exogenous component demand and how to manage the production of the end item and the component so as to maximize the system's profit subject to the system costs. In this paper, we present a heuristic policy that is the base-stock production policy combined with a linear switching curve for component demand control. Numerical study is implemented under different operating conditions of the system and it shows that the performance of the heuristic is very promising compared to that of the optimal policy for the Markov model.
Keywords
two-stage supply system; production control; demand control; heuristic; base-stock;
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