Abstract

We consider a hybrid manufacturing system that produces components based on both long-term contract with higher priority and short-term contract with lower priority. The manufacturer operates production on a make-to-stock mode for the long-term contract and on a make-to-order mode for the short-term contract. Recently, hybrid manufacturing has received attention from academia and industry because it can contribute to profit enhancement through revenue channel diversification. In this paper, using a Markov decision process model, we study the structure of capacity rationing and admission control policies under the assumption of non-preemptive batch production and compound Poisson demand process. We also investigate the effectiveness of backlogging short-term contract orders on profit and examine the impact of long-term contract demand sizes on profit with varying probabilities of each demand size and variance of demand.

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