A Separation Principle for Assemble-to-Order Systems with Expediting

Stanford University Graduate School of Business Research Paper No. 1811

12 Pages Posted: 6 Oct 2003

See all articles by Erica L. Plambeck

Erica L. Plambeck

Stanford Graduate School of Business

Amy R. Ward

Georgia Institute of Technology - The H. Milton Stewart School of Industrial & Systems Engineering (ISyE)

Date Written: June 2003

Abstract

In an assemble-to-order system, a wide variety of products are rapidly assembled from component inventories, in response to customer orders. Orders must be filled within a productspecific target leadtime. In the event that some of the components required to fill an order are out-of-stock, these components are expedited at a high cost per unit. The objective is to minimize the expected infinite horizon discounted cost of nominal component production and expediting. This discounted formulation captures financial inventory holding costs. The levers for control are (1) sequencing orders for assembly (2) component production (3) component expediting. Under the assumption that expedited components have zero leadtime, the multi-dimensional assemble-to-order control problem separates into single-item inventory control problems. The optimal production and expediting policy for each component is independent of all other components. Hence the literature on single-item inventory management with expediting or lost sales is directly relevant to the control of assemble-to-order systems.

Suggested Citation

Plambeck, Erica L. and Ward, Amy R., A Separation Principle for Assemble-to-Order Systems with Expediting (June 2003). Stanford University Graduate School of Business Research Paper No. 1811, Available at SSRN: https://ssrn.com/abstract=441002 or http://dx.doi.org/10.2139/ssrn.441002

Erica L. Plambeck (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Amy R. Ward

Georgia Institute of Technology - The H. Milton Stewart School of Industrial & Systems Engineering (ISyE) ( email )

765 Ferst Drive
Atlanta, GA 30332-0205
United States