Managing capacity in tightly constrained systems

Abstract

Many make-to-order firms face total expected demand in excess of available capacity. This is particularly true, in the short range, for capital intensive firms such as those in the flow process industry, firms making short life cycle products such as those in high-fashion apparel industry, and printing-shops. In such situations the manager is left with the difficult task of allocating the available capacity between competing classes of products and/or customers. At the same time the manager is faced with the challenge of achieving delivery dependability and speed in order to stay competitive. In this paper, I describe the problem, contrast it with a class of problems known as perishable asset revenue management problems, review recent literature that presents alternative approaches for managing capacity such as capacity rationing, improved coordination mechanisms, and subcontracting, and discuss fruitful avenues for future research.