Optimal and asymptotically optimal policies for assemble-to-order n- and W-systems

We consider two specially structured assemble-to-order (ATO) systems - the N- and W-systems - under continuous review, stochastic demand, and nonidentical component replenishment leadtimes. Using a hybrid approach that combines sample-path analysis, linear programming, and the tower property of conditional expectation, we characterize the optimal component replenishment policy and common-component allocation rule, present comparative statics of the optimal policy parameters, and show that some commonly used heuristic policies can lead to significant optimality loss. The optimality results require certain symmetry in the cost parameters. In the absence of this symmetry, we show that, for systems with high demand volume, the asymptotically optimal policy has essentially the same structure; otherwise, the optimal policies have no clear structure. For these latter systems, we develop heuristic policies and show their effectiveness.

Duke Scholars

Author Jing-Sheng Song Fuqua School of Business