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The Use of Switching Point and Protection Levels to Improve Revenue Performance in Order‐Driven Production Systems
Author(s) -
Wang Qiwen,
Gong Xiting,
Deng Honghui,
Leong G. Keong
Publication year - 2011
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.2011.00320.x
Subject(s) - heuristics , casp , revenue , computer science , profit (economics) , production (economics) , revenue management , mathematical optimization , operations research , order (exchange) , product (mathematics) , point (geometry) , scheduling (production processes) , microeconomics , economics , mathematics , physics , geometry , accounting , finance , nuclear magnetic resonance , protein structure , protein structure prediction
ABSTRACT In a multiproduct order‐driven production system, an organization has to decide how to selectively accept orders and allocate capacity to these orders so as to maximize total profit (TP). In this article, we incorporate the novel concept of switching point in developing three capacity‐allocation with switching point heuristics ( CASP a ‐ c ). Our analysis indicates that all three CASP heuristics outperform the first‐come‐first‐served model and Barut and Sridharan's dynamic capacity‐allocation process (DCAP) model. The best model, CASP b , has an 8% and 6% average TP improvement over DCAP using the split lot and whole lot policies, respectively. In addition, CASP b performs particularly well under operating conditions of tight capacity and large price differences between product classes. The introduction of a switching point, which has not been found in previous capacity‐allocation heuristics, provides for a better balance between forward and backward allocation of available capacity and plays a significant role in improving TP.