ASSEMBLE TO ORDER AND ASSEMBLE IN ADVANCE IN A SINGLE-PERIOD STOCHASTIC ENVIRONMENT

Faced with stochastic demand, a firm may decide to assemble its produc ts in advance or assemble them once actual demand is realized. In gene ral, the production cost for items assembled in advance (AIA) is lower than for items assembled to order (ATO), because there is no need to expedite, and the production process can be planned and executed well in advance. On the other hand, items assembled in advance (AIA) for wh ich there is no demand incur excessive and unnecessary assembly costs. The two policies, AIA and ATO, as well as a composite one, are compar ed and analyzed in light of these trade-offs. The composite model, whi ch is shown as the dominating policy, is also extended to deal with th e following two scenarios. The first assumes a loss of a fraction of t he demand when demand cannot be satisfied from the shelf but rather th rough ATO. The second considers the effects of budget constraints on t he total inventory cost. (C) 1995 John Wiley & Sons, Inc.