This Article Full Text (PDF) e-companion References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via Google Scholar Google Scholar Articles by Rubino, M. Articles by Ata, B. Search for Related Content

Dynamic Control of a Make-to-Order, Parallel-Server System with Cancellations

Wolverine Trading LLC, Chicago, Illinois 60604
Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
mrubino{at}wolve.com
b-ata{at}kellogg.northwestern.edu

Motivated by make-to-order production systems, we consider a dynamic control problem for a multiclass, parallel-server queueing system. The production system serves multiple classes of customers who require rigid due-date lead times and may cancel their order subject to a cancellation penalty. To meet the due-date constraints, a system manager may outsource orders when the backlog of work is judged excessive, thereby incurring outsourcing costs. The system manager strives to minimize long-run average costs by dynamically making outsourcing and resource allocation decisions. Under heavy-traffic conditions, the scheduling problem is approximated by a Brownian control problem. Interpreting the solution of the Brownian control problem in the context of the original queueing system, a nongreedy outsourcing and resource allocation policy is proposed. A simulation experiment is performed to demonstrate the effectiveness of this policy.

Subject classifications: make-to-order production; parallel-server queues; heavy-traffic approximations; diffusion models.
History: Received October 2006; revision received September 2007; accepted November 2007.