An integrated approach to inventory and flexible capacity management subject to fixed costs and non-stationary stochastic demand

T. Tan, O. Alp

Research output: Contribution to journalArticleAcademicpeer-review

12 Citations (Scopus)
110 Downloads (Pure)

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.
Original languageEnglish
Pages (from-to)337-360
JournalOR Spectrum
Volume31
Issue number2
DOIs
Publication statusPublished - 2009

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