Single-pass and approximate dynamic-programming algorithms for order acceptance and capacity planning

Abstract

This paper investigates dynamic order acceptance and capacity planning under limited regular and non-regular resources. Our goal is to maximize the profits of the accepted projects within a finite planning horizon. The way in which the projects are planned affects their payout time and, as a consequence, the reinvestment revenues as well as the available capacity for future arriving projects. In general, project proposals arise dynamically to the organization, and their actual characteristics are only revealed upon arrival. Dynamic solution approaches are therefore most likely to obtain good results. Although the problem can theoretically be solved to optimality as a stochastic dynamic program, real-life problem instances are too difficult to be solved exactly within a reasonable amount of time. Efficient and effective heuristics are thus required that supply a response without delay. For this reason, this paper considers both ‘single-pass’ algorithms as well as approximate dynamic-programming algorithms and investigates their suitability to solve the problem. Simulation experiments compare the performance of our procedures to a first-come, first-served policy that is commonly used in practice.