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Optimal Admission Control and Sequencing in a Make-to-Stock/Make-to-Order Production System

Anderson Graduate School of Management, University of California at Los Angeles, Los Angeles, California
University of Michigan, School of Business, Ann Arbor, Michigan 48109
scarr{at}anderson.ucla.edu
duenyas{at}umich.edu

In this paper, we address the problem of admission control and sequencing in a production system that produces two classes of products. The first class of products is made-to-stock, and the firm is contractually obliged to meet demand for this class of products. The second class of products is made-to-order, and the firm has the option to accept (admit) or reject a particular order. The problem is motivated by suppliers in many industries who sign contracts with large manufacturers to supply them with a given product and also can take on additional orders from other sources on a make-to-order basis.

We model the joint admission control/sequencing decision in the context of a simple two-class M/M/1 queue to gain insight into the following problems: 1. How should a firm decide (a) when to accept or reject an additional order, and (b) which type of product to produce next? 2. How should a firm decide what annual quantity of orders to commit to when signing a contract to produce the make-to-stock products?

Subject classifications: Inventory/production: inventory policies for make-to-stock/make-to-order systems; Sequencing: stochastic sequencing.
History: Received February 1997; revision received August 1998; accepted January 1999.

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