Revenue management in a multi-stage make-to-order production system

Guhlich, Hendrik ; Fleischmann, Moritz ; Mönch, Lars ; Stolletz, Raik

SSRN-id2718930 HG MF ML RS 10-15.pdf - Published

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URN: urn:nbn:de:bsz:180-madoc-409695
Document Type: Working paper
Year of publication: 2015
The title of a journal, publication series: SSRN Working Paper Series
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL u. Logistik (Fleischmann 2009-)
Subject: 330 Economics
Abstract: In the present paper, we consider the demand management decisions of a manufacturer facing stochastic demand. While in the previous literature, either the order release decisions are fixed upon arrival or a single-stage production environment is assumed, we make online order acceptance and order release decisions in a multi-stage production system. After describing the problem formally as a stochastic dynamic program, we develop a bid-pricebased revenue management approach in which the order acceptance and order release decisions are made based on previously computed bid prices and feasibility according to a linear program describing the multi-stage production system. A numerical study shows the good performance of the approach compared to an ex-post optimal solution in various supply and demand settings as well as the benefits relative to existing models, which work under simplifying assumptions.

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