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Study on the Allocation Strategy of Inventory and Capacity Based on Revenue Management under ATO Mode

Author: XinGuoQin
Tutor: ShaoXiaoFeng
School: Shanghai Jiaotong University
Course: Management Science and Engineering
Keywords: revenue management ATO inventory strategy capacity allocation
CLC: F224
Type: Master's thesis
Year: 2012
Downloads: 75
Quote: 1
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Abstract

Modern companies are experiencing a fast changing and competitive environment. The pace of technology innovation is faster and faster. Customers’ demand are personalized and in varied forms. The competition is fierce. Products’? life cycles are shorter and shorter. To survive in this environment, the enterprise must have strong ability to deal with problems caused by the change and uncertainties of environment. In order to cope with the challenge, many new production models come into being. Among them, the ATO mode has been widely adopted. Successful use of ATO mode can help enterprise save inventory cost and improve competitive power.ATO companies may face two bottlenecks: limited spare parts inventory and production capacity. Therefore, there are two big challenges for the decision makers of ATO companies: how to determine the spare parts inventory and how to allocate limited capacity to various products. Revenue management, as the technology to realize maximum revenue, can also apply to the ATO mode. This paper will use the theory of revenue management to solve the inventory and capacity allocation problem. It will help ATO companies to seek their maximum revenue. This research has both important theoretical significance and important practical significance.To solve the problem of how to determine the spare parts inventory, this paper study procurement budget allocation problem in ATO production system when parts demand is one-way substitution. There are two models in this part. One model is procurement budget allocation model on the assumption that substitution product’s price is known. The other model is integrated model of substitution product’s pricing and procurement budget allocation problem on the assumption that substitution product’s price is unknown. The relation between model’s results and related parameters are analyzed. Finally, it is demonstrated by an example that the optimal allocation strategy is superior to other allocation strategies. Other conclusions are further verified by numerical examples. The difference between my study and present study results is that my study considers the condition of purchasing budget restriction while this condition is rarely considered in other studies. Meanwhile, focusing on integrated problem of substitution product’s pricing and procurement budget allocation strategy is also one of the paper’s innovations.To solve the problem of how to determine capacity allocation strategy, this paper studies the capacity allocation problem in ATO companies with stochastic capacity. A stochastic capacity allocation model based on the theory of revenue management is established for the production company with two market segments. Then, according to Tallur and Van Ryzin’s stochastic programming treatment methods, we change the stochastic programming problem to a deterministic programming problem. The relation between model’s results and related parameters, including price, penalty, overtime capacity upper limit and work overtime costs are analyzed. Finally, it is demonstrated by an example that the optimal allocation strategy is superior to other allocation strategies. Other conclusions are further verified by numerical examples. The hypothesis that the production capacity is stochastic is the innovation of this paper.

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