Customer Order Admission Control and Inventory Management in a Make-to-order System - The Effects of Replenishment Setup Cost

We study the customer order admission control and inventory management decision in a make-to-order system that processes customer orders using common component. Each incoming customer order can be accepted or rejected based on the system status. The component is purchased from a supplier under stochastic lead times and setup costs. In this paper, we investigate the structure of joint admission and inventory control and examine the impact of setup cost on it. To provide a better understanding of the structure of the optimal policy, we compared its performance with two heuristic policies; the one with static admission control and dynamic replenishment control and the other with static admission and replenishment controls. The paper contributes to the current literature of make-to-order production-inventory systems in the following two essential aspects. First, we study the problem of simultaneously considering admission control and inventory management decisions. Second, we explicitly incorporate the replenishment setup cost into the model and examine its impact on the optimal cost function and the optimal policy.