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We study a single-product assembly system in which the final product is assembled to order whereas the components (subassemblies) are built to stock. Customer demand follows a Poisson process, and replenishment lead times for each component are independent and identically distributed random variables. For any given base-stock policy, the exact performance analysis reduces to the evaluation of a set of MIG/oo queues with a common arrival stream. We show that unlike the standard MIG/oo queueing system, lead time (service time) variability degrades performance in this assembly system. We also show that it is desirable to keep higher base-stock levels for components with longer mean lead times (and lower unit costs). We derive easy-to-compute performance bounds and use them as surrogates for the performance measures in several optimization problems that seek the best trade-off between inventory and customer service. Greedy-type algorithms are developed to solve the surrogate problems. Numerical examples indicate that these algorithms provide efficient solutions and valuable insights to the optimal inventory/service trade-off in the original problems.
1. INTRODUCTION
An assemble-to-order (ATO) system is an important business model in managing a wide-ranging class of supply chains. Perhaps the best way to understand and appreciate an ATO system is to consider the manufacturing and distribution of PCs (personal computers). A PC is a complex machine, built with hundreds of components. A PC company typically offers several lines of product, with each allowing dozens if not hundreds of "features" from which customers can select when placing an order-- different combinations of CPU, memory, hard drive, and other components and peripherals (CD ROM, sound card, modem, monitor, keyboard, printer, etc). Whereas each of these components takes a substantial lead time to build, the time it takes to assemble all the components into a PC, following a specific customer order, takes virtually no time-- provided all the components are available. Hence, managing the component inventory is of critical importance to the business: The stockout of any component will delay order fulfillment, whereas excess inventory could easily wipe out the firm's profit margin and diminish its competitive edge.
The objective of this paper is to address the optimal trade-off between inventory and service in an ATO system with m different components and a single end product. We...