Application extensions from the stochastic capacity rationing decision approach

Abstract

In a profit-oriented organisation with limited resources, the effective allocation of limited capacities to meet demands at the right time to maximise profits is called yield management or revenue management. For a make-to-order manufacturer, products are made only after a received order is confirmed by the customer. The decision to accept or reject the order inquiry is called capacity rationing. This paper investigates three applications extended from the dynamic stochastic capacity rationing (DSCR) procedure proposed previously. The first application extension considers the problem environment, where products are classified into a discrete number of profit classes. Numerical results show that the total profit obtained by the discrete-class DSCR is significantly higher compared with other previous approaches. In the second extension, a boundary profit is calculated and used as a reference value for a price quotation/negotiation in response to a customer order inquiry, which includes a requested quantity of products and delivery date. The third extension allows partial order fulfilment, which is more realistic to several industrial environments. Numerical experiments are also conducted to validate the proposed application extensions of DSCR.

Keywords:

• yield management
• revenue management
• capacity rationing
• decision analysis
• make-to-order

Acknowledgments

This research was supported by research grants from the National Science Council of Taiwan, ROC (NSC 96-2221-E-007-080) and the National Tsing Hua University (Project No. 101N2073E1/102N2075E1).