Optimal control of price and production in an assemble-to-order system

Authors:
Youyi Feng;Jihong Ou;Zhan Pang
Affiliations:
The Chinese University of Hong Kong, Sha Tin, N.T., Hong Kong, China;Cheung Kong Graduate School of Business, China;The Chinese University of Hong Kong, Sha Tin, N.T., Hong Kong, China
Venue:
Operations Research Letters
Year:
2008

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Abstract

We study the optimal control of an assembly system that produces one assembled-to-order final product with multiple made-to-stock components and sells it at variable price. It is shown that a threshold control on component production, product price, and product orders maximizes total discounted profit over an infinite horizon.