Revenue management in an assemble-to-order production system

In this paper, we consider demand management decisions for an assemble-to-order production system in which both the availability of intermediate material and assembly capacity are limited. For each incoming order, the manufacturer must decide whether to accept it and what due date to quote for an accepted order. The actual assembly dates are still subject to change after these decisions, and a production schedule must be maintained to guarantee that the quoted due dates are met. Therefore, the decisions on accepting orders and quoting due dates must be made with incomplete knowledge of the actual resources used to fulfill the orders. To address these factors, we model this situation and develop a novel revenue management approach using bid prices. An extensive numerical study demonstrates the good performance of the proposed approach in comparison with benchmark algorithms and an expost optimal solution applied over a wide range of different supply and demand scenarios. Our results suggest that the consideration of assembly capacity constraints is more vital than the consideration of intermediate material constraints in our test cases.