Optimal Control of a Make-to-Stock System with Outsourced Production and Price-Sensitive Demand
We consider a make-to-stock system with controllable demand rate (by varying product selling price) and adjustable service rate (by outsourcing production). With one outsourcing alternative and a choice of either high or low price, the system decides at any point in time whether to produce or even o...
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| Format: | Article |
| Language: | English |
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Wiley
2014-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2014/301309 |
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| _version_ | 1832552342514302976 |
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| author | Liuxin Chen Gang Hao Huimin Wang |
| author_facet | Liuxin Chen Gang Hao Huimin Wang |
| author_sort | Liuxin Chen |
| collection | DOAJ |
| description | We consider a make-to-stock system with controllable demand rate (by varying product selling price) and adjustable service rate (by outsourcing production). With one outsourcing alternative
and a choice of either high or low price, the system decides at any point in time whether to produce or even outsource for additional capacity as well as which price to sell the product at. We show in the paper that the optimal control policy is of dynamic threshold type: all decisions are based on the product inventory position which represents the state of the system; there is a state dependent base stock level to decide on production and a higher level on outsourcing; and there is a state dependent threshold which divides the choice of high and low prices. |
| format | Article |
| id | doaj-art-1b1ca25d1cd440c6b188fd983f659317 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2014-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-1b1ca25d1cd440c6b188fd983f6593172025-02-03T05:58:50ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2014-01-01201410.1155/2014/301309301309Optimal Control of a Make-to-Stock System with Outsourced Production and Price-Sensitive DemandLiuxin Chen0Gang Hao1Huimin Wang2Business School, Hohai University, No. 8 Fochen West Road, Jiangning District, Nanjing City 211100, ChinaDepartment of Management Science, City University of Hong Kong, Kowloon, Hong KongBusiness School, Hohai University, No. 8 Fochen West Road, Jiangning District, Nanjing City 211100, ChinaWe consider a make-to-stock system with controllable demand rate (by varying product selling price) and adjustable service rate (by outsourcing production). With one outsourcing alternative and a choice of either high or low price, the system decides at any point in time whether to produce or even outsource for additional capacity as well as which price to sell the product at. We show in the paper that the optimal control policy is of dynamic threshold type: all decisions are based on the product inventory position which represents the state of the system; there is a state dependent base stock level to decide on production and a higher level on outsourcing; and there is a state dependent threshold which divides the choice of high and low prices.http://dx.doi.org/10.1155/2014/301309 |
| spellingShingle | Liuxin Chen Gang Hao Huimin Wang Optimal Control of a Make-to-Stock System with Outsourced Production and Price-Sensitive Demand Discrete Dynamics in Nature and Society |
| title | Optimal Control of a Make-to-Stock System with Outsourced Production and Price-Sensitive Demand |
| title_full | Optimal Control of a Make-to-Stock System with Outsourced Production and Price-Sensitive Demand |
| title_fullStr | Optimal Control of a Make-to-Stock System with Outsourced Production and Price-Sensitive Demand |
| title_full_unstemmed | Optimal Control of a Make-to-Stock System with Outsourced Production and Price-Sensitive Demand |
| title_short | Optimal Control of a Make-to-Stock System with Outsourced Production and Price-Sensitive Demand |
| title_sort | optimal control of a make to stock system with outsourced production and price sensitive demand |
| url | http://dx.doi.org/10.1155/2014/301309 |
| work_keys_str_mv | AT liuxinchen optimalcontrolofamaketostocksystemwithoutsourcedproductionandpricesensitivedemand AT ganghao optimalcontrolofamaketostocksystemwithoutsourcedproductionandpricesensitivedemand AT huiminwang optimalcontrolofamaketostocksystemwithoutsourcedproductionandpricesensitivedemand |