How useful is commonality? Inventory and production decisions to maximise survival probability in start-ups
How useful is commonality? Inventory and production decisions to maximise survival probability in start-ups
This paper deals with component commonality in start-up manufacturing firms. We present a two-product Markov decision model that examines the implications of the inventory and production strategies for the survival probability of the firm. The advantage of using component commonality is studied for varying costs, demand correlations and order replenishment lead times. Optimal policies are derived, and minimum stock levels for survival are obtained. Moreover, we state the conditions under which simplified production decisions can be made. It is shown that commonality is not only useful as a way of dealing with demand uncertainty, but that its increased use is preferred for strongly substitutable products, and shorter replenishment lead times.
inventory, manufacturing, commonality, stochastic modelling, dynamic programming
305-320
Thomas, Lyn C.
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Possani, Edgar
a811956e-a248-4996-b2a1-5290148e3868
Archibald, Thomas W.
7b19237f-0d39-4979-88c5-5c40090991ee
2003
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Possani, Edgar
a811956e-a248-4996-b2a1-5290148e3868
Archibald, Thomas W.
7b19237f-0d39-4979-88c5-5c40090991ee
Thomas, Lyn C., Possani, Edgar and Archibald, Thomas W.
(2003)
How useful is commonality? Inventory and production decisions to maximise survival probability in start-ups.
IMA Journal of Management Mathematics, 14 (4), .
(doi:10.1093/imaman/14.4.305).
Abstract
This paper deals with component commonality in start-up manufacturing firms. We present a two-product Markov decision model that examines the implications of the inventory and production strategies for the survival probability of the firm. The advantage of using component commonality is studied for varying costs, demand correlations and order replenishment lead times. Optimal policies are derived, and minimum stock levels for survival are obtained. Moreover, we state the conditions under which simplified production decisions can be made. It is shown that commonality is not only useful as a way of dealing with demand uncertainty, but that its increased use is preferred for strongly substitutable products, and shorter replenishment lead times.
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Published date: 2003
Keywords:
inventory, manufacturing, commonality, stochastic modelling, dynamic programming
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Local EPrints ID: 35850
URI: http://eprints.soton.ac.uk/id/eprint/35850
ISSN: 1471-678X
PURE UUID: e7452a37-fa20-4b08-985b-ce0bd0d60beb
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Date deposited: 23 May 2006
Last modified: 15 Mar 2024 07:54
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Contributors
Author:
Lyn C. Thomas
Author:
Edgar Possani
Author:
Thomas W. Archibald
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