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Inventory policies for a make‐to‐order system with a perishable component and fixed ordering cost
Author(s) -
Frank Katia C.,
Ahn HyunSoo,
Zhang Rachel Q.
Publication year - 2009
Publication title -
naval research logistics (nrl)
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.665
H-Index - 68
eISSN - 1520-6750
pISSN - 0894-069X
DOI - 10.1002/nav.20332
Subject(s) - economic order quantity , operations research , order (exchange) , fixed cost , profit (economics) , computer science , operations management , holding cost , margin (machine learning) , profit margin , cost structure , business , economics , microeconomics , supply chain , mathematics , marketing , finance , machine learning
Abstract We consider a make‐to‐order production system where two major components, one nonperishable (referred to as part 1) and one perishable (part 2), are needed to fulfill a customer order. In each period, replenishment decisions for both parts need to be made jointly before demand is realized and a fixed ordering cost is incurred for the nonperishable part. We show that a simple ( s n , S n 1 , S n 2 ) policy is optimal. Under this policy, S n 2along with the number of backorders at the beginning of a period if any and the availability of the nonperishable part (part 1) determines the optimal order quantity of the perishable part (part 2), while ( s n , S n 1 ) guide when and how much of part 1 to order at each state. Numerical study demonstrates that the benefits of using the joint replenishment policy can be substantial, especially when the unit costs are high and/or the profit margin is low. © 2009 Wiley Periodicals, Inc. Naval Research Logistics, 2009