Order acceptance and scheduling at a make-to-order system using revenue management

• Main Author: Jalora, Anshu
• Other Authors: Peters, Brett A.
• Format: Others
• Language: en_US
• Published: Texas A&M University 2006
• Subjects: Revenue Management; Make to Order
• Online Access: http://hdl.handle.net/1969.1/4421

Make-to-order (MTO) systems have been traditionally popular in manufacturing industries that either seek to provide greater variety to their customers or make products that are unique to their customers. More recently, with shrinking product life cycles, there is an increasing interest in operating as MTO systems. With the tremendous success of revenue management techniques in the service industries over the last three decades, there is a growing interest in applying these techniques in MTO manufacturing industries. In the present work, we consider three problems that apply revenue management (RM) to on-date delivery MTO systems. In the first problem, we assume that all orders completed in advance of their due-dates are stored at third party warehouses and apply RM in computing efficient order acceptance and scheduling policies. We develop an optimal solution scheme, and based on the insights gained on the structural properties of the optimal solution, we develop a stochastic approximation scheme for finding efficient solutions. Through computational studies on simulated problems, we illustrate the potential of RM in improving net profits over popular practices. In our second problem, we extend the RM model to consider presence of a certain amount of first party warehousing capacity for storing the orders completed in advance of their due-dates. We study the conditions under which it is desirable to consider the holding cost aspects in the RM model. In our third problem, we develop a scheme for determining an efficient capacity of the first party warehouse that is used for storing the orders completed in advance of their due-dates at an on-date delivery MTO system. This scheme captures the completed orders storage demand resulting from a RM based order acceptance and scheduling policy. We illustrate that when booking horizon is large, considerable amount of savings in the holding costs can be made with an efficiently sized first party warehouse.