Title: Effectiveness of capacity rationing heuristics in make to order environment

Authors: Mehmet Barut; Mehmet Bayram Yildirim; V. Sridharan

Addresses: Department of Finance, Real Estate, and Decision Sciences, Barton School of Business, Wichita State University, 1845 North Fairmount Street, Wichita KS 67260-0077, USA ' Department of Industrial and Manufacturing Engineering, College of Engineering, Wichita State University, 1845 North Fairmount Street, Wichita KS 67260-0035, USA ' Department of Management, College of Business and Behavior Science, Clemson University, 101 Sirrine Hall, Clemson, SC 29634-1305, USA

Abstract: This paper investigates the effectiveness of a dynamic capacity-rationing heuristic for order acceptance and rejection in a capacitated make-to-order manufacturing environment. The heuristics developed for managing capacity has been shown to work better than accepting orders on a first-come, first-served basis. However, realised effectiveness versus potential effectiveness with respect to optimum has not been investigated. Results of this study reveal that the rationing heuristic is very effective in yielding results in proximity of optimum solution when customer segments are very distinct or highly differentiated and when implied utilisation is very high. On the other hand, when the attractiveness of higher profitable customer segment diminishes and capacity is not tight there is a significant potential to improve the heuristic.

Keywords: decision analysis; risk assessment; heuristics; optimisation; capacity rationing; revenue management; MTO manufacturing; make to order; capacity management.

DOI: 10.1504/IJAOM.2015.071478

International Journal of Advanced Operations Management, 2015 Vol.7 No.2, pp.136 - 156

Received: 11 Mar 2015
Accepted: 26 Jun 2015

Published online: 29 Aug 2015 *

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