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Robustness of capacity rationing policies
Journal article

Robustness of capacity rationing policies

Abstract

A recent paper discusses a capacity rationing policy that allows make-to-order manufacturing firms encountering expected total demand in excess of available capacity to discriminate between two classes of products, one yielding a higher profit contribution per unit of capacity allocated to it than the other. The result is a selective rejection of orders for the class with lower unit contribution, yielding an increase in total profit when compared to a base case that implements no capacity rationing. Implementation of the policy requires forecasts of demand parameters for both product classes. In this paper we test the sensitivity of the capacity rationing policy to forecast errors in these parameters. The results indicate that, on average, the rationing policy is quite robust in improving profit even when actual demands are approximately twenty percent different from forecast values.

Authors

Balakrishnan N; Patterson JW; Sridharan V

Journal

European Journal of Operational Research, Vol. 115, No. 2, pp. 328–338

Publisher

Elsevier

Publication Date

June 1, 1999

DOI

10.1016/s0377-2217(98)00208-2

ISSN

0377-2217

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