Assemble-to-order (ATO) systems can be regarded as a multiple resource allocation that induces production planning, requirements fulfilling and inventory assignment. ATO is a popular strategy used in manufacturing management. Due to the increasing complexity of today’s manufacturing systems, the challenge for ATO systems is to efficiently manage component inventories and make optimal production and allocation decisions. We study an ATO system with a single product which is assembled from multiple components. The system faces demand not only from the assembled product but also from the individual components. We consider the pure lost sales case and the mixed lost sales and backorders case with exponential production times and Poisson demand. We formulate the problem as a Markov decision process (MDP), and consider it under two optimality criteria: discounted cost and average cost per period. We characterize the structure of the optimal policy and investigate the impact of different system parameters on the optimal policy. We also present several static heuristic policies for the pure lost sales and the mixed lost sales and backorders cases. These static heuristics provide simple, yet effective approaches for controlling production and inventory allocation of ATO system
Integrated Production and Inventory Control of Assemble-To-Order Systems with Individual Components Demand