Integrated capacity and inventory decisions

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Abstract

This paper deals with the simultaneous acquisition of capacity and material in a situation with uncertain demand, with non-zero lead-times for the supply of both material and capacity. Although there is a lot of literature on the time-phased acquisition of capacity and material, most of this literature focuses on one of the two decisions. By using a dynamic programming formulation, we describe the optimal balance between using safety stocks and contingent workforce for various lead-time situations. We compare the cost ingredients of the optimal strategy with the standard inventory approach that neglects capacity restrictions in the decision. The experimental study shows that co-ordination of both decisions in the optimal strategy leads to cost reductions of around 10%.We also derive characteristics of the optimal strategy that we expect to provide a thorough basis for operational decision making.
Original languageEnglish
Title of host publicationOperations Research Proceedings 2011 : Selected Papers of the International Conference on Operations Research (OR 2011), August 30 - September2, Zurich, Switzerland
EditorsD. Klatte, H.-J. Lüthi, K. Schmedders
Place of PublicationBerlin
PublisherSpringer
Pages463-468
ISBN (Print)978-3-642-29210-1
DOIs
Publication statusPublished - 2012
Eventconference; International Conference on Operations Research (OR 2011); 2011-08-30; 2011-09-02 -
Duration: 30 Aug 20112 Sep 2011

Publication series

NameOperations Research Proceedings
ISSN (Print)0721-5924

Conference

Conferenceconference; International Conference on Operations Research (OR 2011); 2011-08-30; 2011-09-02
Period30/08/112/09/11
OtherInternational Conference on Operations Research (OR 2011)

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