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Note—Optimal Component Acquisition for a Single-Product, Single-Demand Assemble-to-Order Problem with Expediting

Lingnan College, Sun Yat-sen University, Guangzhou 510275, China
School of Management, George Mason University, Fairfax, Virginia 22030
Department of Industrial Engineering and Logistics Management, Hong Kong University of Science and Technology, Kowloon, Hong Kong
fuke{at}mail.sysu.edu.cn
vhsu{at}gmu.edu
cylee{at}ust.hk

We consider a component acquisition problem for a contract manufacturer who faces a one-time stochastic demand for a single product consisting of a number of components. Components can be ordered early at normal prices before the demand is revealed, or they can be replenished later at higher prices due to expediting. In addition, the customer pays a price for the final product that is nonincreasing in the delivery lead time to discourage late delivery. We propose a cost-minimization model and develop an efficient polynomial time algorithm to solve the problem.

Key Words: assemble-to-order systems; component supply lead times; expediting
History: Received: December 1, 2005; accepted: August 19, 2007.