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.
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Tan, T., Alp, O. An integrated approach to inventory and flexible capacity management subject to fixed costs and non-stationary stochastic demand. OR Spectrum 31, 337–360 (2009). https://doi.org/10.1007/s00291-008-0122-y
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DOI: https://doi.org/10.1007/s00291-008-0122-y
Keywords
- Inventory
- Production
- Stochastic models
- Capacity management
- Flexible capacity