Eungab Kim

Optimal Production Controls in a Two-Stage Production System with a Component Selling Option

This paper considers a two-stage make-to-stock production system. The first stage produces a single type of component and the second stage produces products for future customer demands using components. In addition to internal demands from the second stage, the first stage has external demands with the option of to accept or reject each incoming demand. To manage two types of component demands, the manufacturer adopts a static rule for component inventory rationing. This paper addresses how to coordinate the production controls at both facilities in order to maximize the manufacturers profit. Using the Markov decision process model, we identify the structural properties of the optimal value function and characterize the optimal production policy by two monotonic switching curves.

The Impact of Capacity Flexibility in a Rental Operation on the Financial Performance

We present a new framework for rental capacity management in which rental capacity is dynamically managed by means of temporary inventory addition/return. While serving customers with its own (native) capacity, the rental firm rents additional rental capacity from an upper echelon rental company so that it can avoid lost sales which may occur when stock is not sufficient, and returns it when stock becomes sufficiently large enough to cope with demands. Formulating the model as a Markov decision process, we investigate a flexible capacity addition/return policy that maximizes the firms profit with respect to system costs. Numerical study indicates that rental operation with capacity addition/return can be economically favorable over rental operation without capacity expansion/return and can contribute the reduction in the size of native rental capacity.

Joint Batch Production and Inventory Rationing Control in a Two-Station Serial Production System

Eungab KimCollege of Business Administration Ewha Womans UniversityThis paper considers a manufacturer with a two-station make-to-stock and make-to-order serial production system. The MTS facility produces a single type of component and provides components for the MTO facility that produces customized products. In addition to the internal demand from the MTO facility, the MTS facility faces demands from the spot market with the option of to accept or reject each incoming demand. This paper addresses a joint component inventory rationing and batch production control which maximizes the manu-facturer’s profit. Using the Markov decision process model, we investigate the structural properties of the optimal inventory rationing and batch production policy, and present two types of heuristics. We implement a numerical experiment to compare the performance of the optimal and heuristic policies and a simulation study to examine the impact of the stochastic process variability on the inventory rationing and batch production control.

Managing Inventories of Brand-New and Recovered Products in a Reverse Supply Chain with Downward Demand Substitution

This paper considers a reverse supply chain with simultaneous r ecovery of used products and manufacturing of brand-new ones. Recovered products are downgraded and have to b e sold in a market different from that of brand-new products at a different price. In case of a shortage of recover ed product inventory, a brand-new item, if available, can be offered at the price of a recovered product. In other wo rds, one-way demand substitution is allowed. We address the joint decision of when to manufacture brand-new product, wh en to recover returned product, and how to control demand substitution to maximize the hybrid production system’s profits. To this end, we propose a Markov decision Process model and investigate the structure of the optimal poli cy. Performance comparison is numerically implemented between the models with and without downward demand substitutio n option under different operating conditions of the system parameters.

Coordination of Component Production and Inventory Rationing for a Two-Stage Supply Chain with a VMI Type of Supply Contract

This paper considers a supply chain consisting of a component manufacturer and a product manufacturer. The component manufacturer provides components for the product manufacturer based on a vendor-managed inventory type of supply contract, and also faces demands from the market with the option of to accept or reject each incoming demand. Using the Markov decision process model, we examine the structure of the optimal production control and inventory rationing policy. Two types of heuristics are presented. One is the fixed-buffer policy and the other uses two linear functions. We implement a computational study and present managerial insights based on the observations.

Optimal Control for Cash Management with Investment and Retrieval

We develop a cash management model in which firms face randomly occurred investment projects and retrieve investments upon the maturity of these projects. Using the Markov Decision Problem approach, we examine a control policy which dynamically adjusts the cash balance under the discounted cost criterion. The existence of an optimal policy is shown under some conditions. The optimal solution procedure is developed to find the optimal points and the optimal sizes for adjusting the cash balance. In numerical experiment, we investigate important structural properties of the optimal cash management policy.