An integrated approach to inventory and flexible capacity management subject to fixed costs and non-stationary stochastic demand
Author
Tan, T.
Alp O.
Date
2009Source Title
OR Spectrum
Electronic ISSN
1436-6304
Publisher
Springer
Volume
31
Issue
2
Pages
337 - 360
Language
English
Type
ArticleItem Usage Stats
100
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views
82
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downloads
Abstract
In a manufacturing system with flexible capacity, inventory management can be coupled with capacity management in order to handle fluctuations in demand more effectively. Typical examples include the effective use of temporary workforce and overtime production. In this paper, we discuss an integrated model for inventory and flexible capacity management under non-stationary stochastic demand with the possibility of positive fixed costs, both for initiating production and for using contingent capacity. We analyze the characteristics of the optimal policies for the integrated problem. We also evaluate the value of utilizing flexible capacity under different settings, which enable us to develop managerial insights. © 2008 The Author(s).