Spring 2005 Seminar Series

DATE: Thursday, April 28, 2005
LOCATION: E40-298
TIME: 4:15pm
Reception immediately following in the Philip M. Morse Reading Room, E40-106

SPEAKER:
Erica Plambeck
Associate Professor of Operations, Information, and Technology
Graduate School of Business
Stanford University

TITLE
Optimal Control of a High Volume Assemble-to-Order System

ABSTRACT
Consider an assemble-to-order system (like Dell) that fills customer orders for a wide variety of products by rapidly assembling modular components. Customer orders for each product arrive according to a renewal process with known rate and variance. Orders are lost if not filled within a product-specific target leadtime. Production facilities for each component are geographically distant from the assembly facility. Each shipment of components incurs a fixed cost and a variable cost per unit. The system manager must initially purchase production capacity for each component, and then dynamically control component production (expediting and salvaging), component shipping, and the sequencing of customer orders for assembly. Her objective is to minimize expected discounted costs for lost sales, production and shipping. As the order arrival rate becomes large, this complex control problem separates into one independent control problem for each component. A simple threshold policy for each component is asymptotically optimal. The closed form expressions for the thresholds correspond to Harrison and Taksar's (1984) solution of a singular Brownian control problem.