City Research Online

Optimal control of an assembly system with demand for the end-product and intermediate components

Ceryan, O. ORCID: 0000-0002-7298-9781, Duenyas, I. & Koren, Y. (2012). Optimal control of an assembly system with demand for the end-product and intermediate components. IIE Transactions, 44(5), pp. 386-403. doi: 10.1080/0740817x.2011.609525


This article considers the production and admission control decisions for a two-stage manufacturing system where intermediate components are produced to stock in the first stage and an end-product is assembled from these components through a second-stage assembly operation. The firm faces two types of demand. The demand for the end-product is satisfied immediately if there are available products in inventory while the firm has the option to accept the order for later delivery or to reject it when no inventory is available. Demand for intermediate components may be accepted or rejected to keep components available for assembly purposes. The structure of demand admission, component production and product assembly decisions are characterized. The proposed model is extended to take into account multiple customer classes and a more general revenue collecting scheme where only an upfront partial payment is collected if a customer demand is accepted for future delivery with the remaining revenue received upon delivery. Since the optimal policy structure is rather complex and defined by switching surfaces in a multidimensional space, a simple heuristic policy is proposed for which the computational load grows linearly with the number of products and its performance is tested under a variety of example problems.

Publication Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in IIE Transactions on 11 Aug 2011, available online:
Publisher Keywords: Production and inventory control, multistage assembly systems, inventory rationing, demand management, Markov decision processes, dynamic programming, optimal control
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Departments: Bayes Business School > Management
SWORD Depositor:
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